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Rollover from 401(k) to SIMPLE?


Guest Thornton
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Guest Thornton

A broker I work with has a client that just terminated the company 401(k) plan and will start a SIMPLE 1/01/04. The client was told by its TPA that balances could not be rolled over from the terminated 401(k) plan into the SIMPLE. I disagree, but respect this particular TPA, so thought I would ask if I'm missing something. Thanks.

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The TPA is correct. The only assets that can be contributed to a SIMPLE IRA are SIMPLE contributions and/or transfers or rollovers from other SIMPLE IRAs. Notice 98-4

For SIMPLE 401(k)s, only SIMPLE 401(k) contributions are allowed… 401(k)(11)(B)(i)(III)

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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  • 7 months later...

A client asked if he can termate his 401k plan, set up a simple 401k, then roll the 401k balances in. I told him no. He sent an excerpt from the "Guide to 401(k) Plans", a publication I have not seen before. Anyway, under the topic "Rollovers between simple and 401(k) plans" it says "Under Code Sec. 401(k)(11)(B)(i)(III), a simple 401(k) plan may receive only elective and matching contributions. However, commentators have noted that Rec. Proc. 97-9, which provides a model amendment that may be used by employers looking to adopt simple plans, states that no employer or employee contributions may be made to the plan for the year other than rollover contributions described in IRS Reg. 1.402©-2, Q&A-1(a). This language seems to approve rollovers into a simple plan." I checked 97-9, and sure enough, that's what it says.

I'm guessing that 401(k)(11)(B)(i)(III) (also cited by Appleby in an earlier post to this thread) supersedes Rev. Proc. 97-9. Comments would be appreciated. Thanks.

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Maverick, I believe that Rev Proc 97-9 can be followed (the 401(k) plan distributions can be rolled over to a 401(k) SIMPLE). It is my understanding that the Service does not consider the rollover to be a "contribution" for purposes of IRC 401(k)(11)(B)(i)(III). The plan must be amended to accept such contributions. Why not just amend the existing plan into a 401(k) SIMPLE?

Thornton, it should be noted that a SIMPLE IRA is not an eligible retirement plan for purposes of receiving a rollover (except from another SIMPLE IRA). [iRC 408(d)(3)(G)].

Hope this helps.

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