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SIMPLE IRA Plan for 2002, adopted in late December?


Guest tracyzimmer
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Guest tracyzimmer

Gary,

Hello. Today, I have a client who is desperately looking to open and fund a SIMPLE IRA for plan year 2002. The fund company is telling me that the IRS deadline for the signed plan adoption agreement was Oct 1, 2002 and that the employees need a 60 day enrollment period. The client's accountant is arguing that if the client and employees are ready and willing to do all the paperwork by today or tomorrow, then that would satisfy the IRS (according to his interpretation). I need help. I do not know the tax code for SIMPLE IRA's. Can you help me out?

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What is the tax benefit that the client wants for 2002 that requires a SIMPLE plan? It appears at this point that the employer is trying to adopt the 2% non matching contribution for all employees with income of 5k. The client could still adopt a Qualified PS plan with a 2% formula if an adoption agreement or similar document can be completed by the client on 12/31. (I am assuming that a prototype adoption agreement can be faxed/emailed to the client.) Secondly the client could adopt a SEP plan by the date for filing the employer's 2002 tax return with extensions and make a nondiscriminatory 2% contribution for all employees with service in 3 of last 5 years. Third, the employer could make a contribution of up to $3000 to IRAs for selected or all employees by April 15, 2003 without adopting any plan. Fourth, why are u questioning the accountant if he is willing to assume the risk that the SIMPLE IRA can be established for 2002? After all the accountant will be filing the employer's tax return claiming the tax deduction for the simple IRA. Remember the fund company cannot give legal or tax advice- the disclaimer in on all of their materials.

mjb

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…question the accountant because he/she is wrong.

Employers need to be aware the rules and why they are implemented.

In the case of the SIMPLE IRA it makes sense.

Congress implemented the October 1 deadline and the 60-day notification requirement for the SIMPLE to allow non-owner and non-highly compensated employees to take advantage of the opportunities under the plan. The logic is, in most cases, if the plan is established in December, the business owner will likely be able to defer the full amount and therefore receive matching contributions. Lower paid employees may not be earning enough to defer any significant amount ( if any) in a lump-sum). As a result, only the business owner and any other highly paid employee would benefit.

Fact is, like Barry said- it is too late.

And like you said , choose another plan that is not subjected to the October 1 deadline, like a SEP.

Then , if the employer really wants to establish a SIMPLE, do so early 2003

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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Furthermore, IRS guidance precludes adoption after the October 1 deadline except in the case of a new employer. [Notice 98-4, Q&A K-1]

The legistlative history indicates that the deadline is to prevent overlapping election periods and to prevent possible abuses. [s Report No 104-281, at 66 (1996); see SPJPA Sec 1421(a); see too, [i]Simple, SEP and SARSEP Answer Book [/i](8th Ed) Q 14:17]

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