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Simple IRA re-hire/eligibility rules


Guest chris4013
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If a SEP, apply the eligibility rules taking into account any service during the preceeding 5 plan years. In most cases, a former participant is a participant for the plan year of their rehire.

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  • 2 months later...
Guest bmurphy

Gary:

Does the re-hired participant need to wait until the next "window" set by the employer before they can begin deferrals again? Plan only allows SRA's to be made effective July 1st outside of the normal year-end period.

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It appears not...The eligible rehired employee should be notified of his/her eligibility to participate in the plan during a special election period, which is 60 days, beginning on or before the day the employee is rehired. As a result, the rehired employee need not wait until the next election period (under the plan) to participate.

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 years later...

Six years have passed since the answer to this was posted - is the answer still valid? Have an employee who was eligible in 2008 and 2009, went on workmans comp in 2010 has under $ 5,000 in compensation in 2010, according to this post she is still eligible. The 5304-SIMPLE is silent on rehires, although I did see American Fund's document states a former participant is eligible upon rehire - no reference to the 5 year lookback previously posted. Can anyone provide a site for this? Don't see it addressed in the regs or the Code (IRC 408). Thank you!

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:rolleyes: Appleby is still correct. The rehired employee is eligible on their date of rehire. By allowing the 60-day period to start on the day plan notice is provided to the rehired employee (instead of the next day), a rehired former employee, for example, will not have to wait until the following year to become eligible. It would be impractical to require notice before the date of eligibility; because that day or the identity of the employee, is not always known. See SIMPLE-IRA LRM Sections 6 and 7; IRC 408(l)(2)© and 6693©; ERISA 101(g).

Under the model document, the rehired employee would appear eligible (Article 1). The 60-day period to make or change the salary reduction election begins when the 60-day notice is provided (Article II(2)(a)).

Unless this employee was rehired during the same calendar year that they "made an election to terminate" their salary reduction agreement, I see no reason to make the individual wait until the following year (or next election period if sooner) to participate (with a valid SR election agreement inplace).

Hope this helps.

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