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Question about the rule that a firm can't have traditional 401(k) and


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Client has a "traditional" 401(k) that they want to terminate as of 12/31/02. Do 100% of the assets have to be out of the plan by 12/31/02 in order for them to set up a SIMPLE plan 1/1/03? All employees will probably roll their plan balances into the SIMPLE, but that can't happen until early January 2003. Thanks. Maverick

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You can't, during any part of the calendar year, (2003) maintain another qualified plan "with respect to which contributions are made, or benefits are accrued, for service in the calendar year."

So if no deferrals or contributions in 2003, then you are OK. Earnings do not count as contributions, and forfeitures do NOT count as a contribution unless they replace a contribution which is otherwise required. Transfers or rollovers also do not count.

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After reviewing previous threads on this issue, I believe that it's okay to term the 401k plan 12/31/02, then establish a SIMPLE IRA 1/1/03.

I even found a thread that said there would be no problem if the final 401(k) deferrals of 2002 don't get deposited until 2003.

The assets being out of the 401k plan is not an issue either, as long as there aren't any 2003 contributions made to the qualified plan.

Can someone confirm my findings? Thanks. Maverick

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