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owner of company with 401(k0 buying company with SIMPLE


Guest gnielsen

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Guest gnielsen

A client of ours owns an LLC with a 401(k) plan (in which he does not participate). He plans to buy a company in another state which has a SIMPLE plan in effect.

(1) Can he continue to maintain both plans?

(2) If so, can he do so indefinitely, or is there a cutoff point?

(3) If not, how long does he have to change things, and what (in particular) happens this year?

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IMHO - taking into account the parallel provisions of 410(b)(6)© and 408(p)(10) -

1. Yes - but only for the transition period.

2. There is a cutoff. The transition period is through the end of the first plan year beginning after the transaction. So assuming calendar year, ok through 12-31-05.

3. Nothing has to happen this year.

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Agreed...

If the exclusive plan rule is not satisfied due to a merger or acquisition, there is a transition period, beginning the year the acquisition/merger occurs and continuing into the next year. See IRS Notice 98-4 for exceptions to the exclusive plan rule for mergers, acquisitions and similar transactions, Q&A B2 which states

Q. B-2 Is there a grace period that can be used by an employer that ceases to satisfy the 100-employee limitation?

A. B-2: An employer that previously maintained a SIMPLE IRA Plan is treated as satisfying the 100-employee limitation for the 2 calendar years immediately following the calendar year for which it last satisfied the 100-employee limitation. However, if the failure to satisfy the 100-employee limitation is due to an acquisition, disposition or similar transaction involving the employer, then the 2-year grace period will apply only in accordance with rules similar to the rules of § 410(b)(6)©(i).

See also the comment in the same Notice…

Moreover, during the calendar year in which an acquisition, disposition or similar transaction occurs (or the following calendar year), an employer may exclude from eligibility all of the employees who would not have been eligible if the transaction had not occurred (and thus the employer maintaining the SIMPLE IRA Plan had remained a separate employer). See paragraph (2) of Q&A B-3 for circumstances in which exclusion of these employees would be required.

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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