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Termination of PS plan in 2003 (not yet funded); OK to start SIMPLE plan 10/1/03?


MarZDoates
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  • 2 weeks later...
  • 2 weeks later...

Hi,

So, can an employer have a 401(k) plan and a simple IRA but only contribute to the SIMPLE? Apparently, we have a client that started up the Simple before terminating the 401(k) due to audit issues. They treat the 401(k) as frozen pending termination. Can they contribute to the simple while the 401(k) is frozen? I'm sorry, I'm not the expert on simples.

Thanks for any help.

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The rule is that an employer may not maintain a SIMPLE in the same year the employer maintains another plan. If a plan is frozen, and no contributions, except for rollover contributions and forfeitures (except to the extent forfeitures replace otherwise required contributions)were made to the plan for the year, then the employer may establish and fund a SIMPLE . IRS Notice 98-4

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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  • 6 months later...
Guest BK Green

What becomes of that 401k that is "frozen" but never terminated? Can the sponsor of a new 401(k) plan that has never been used, no contributions of any type, freeze the 401k, implement a SIMPLE IRA and use it for a few years, then cease contributions to the SIMPLE and unfreeze the 401k for use???

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I don’t see why not. The restriction is on maintaining both plans in the same year. If the 401(k) plan is frozen, then it is not being maintained, therefore, the employer should be eligible to establish a SIMPLE for the year.

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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