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Terminating a Simple IRA plan and opening a 401k plan


Guest gfowler
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I need a few questions answered:

A company currently sponsors a Simple IRA plan. The plan has been in place for over two years, but not all of the participants have been in the plan for at least two years. The comany would now like to close down the Simple IRA plan and become an adopting employer of a multiple employer (PEO) plan. My understanding is that the Simple IRA can only be closed at the end of the plan year, and then those employees who have been in the plan at least two years could roll their balance over to the new PEO 401k plan (if they wanted). However, those employees who have been participating in the plan less than two years cannot roll their money to the new PEO 401k plan. What options do the participants with less than 2 years participation have? Can the plan close down at this time? or does the company have to wait until everyone has been a participant for two years? Any help you can give is appreciated. Thank you.

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So if they terminate the plan 12/31/04, they could adopt the new 401k plan effective 1/1/05? Can they terminate the Simple IRA at any time? thanks.

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Remember that if the SIMPLE Plan is terminated, the SIMPLE IRA assets can remain in each participant’s SIMPLE IRA until the individual owner is ready to make withdrawals or transfer/rollover the SIMPLE assets to an eligible retirement plan. Withdrawing the assets from the SIMPLE is optional. SIMPLEs are not like QPs, where the assets must be distributed from the terminated plan.

…also, technically, it is not so much that the company can’t start the new plan in 2004, but that if did, that would invalidate the SIMPLE, causing SIMPLE contributions for the year to be ineligible/excess contributions.

…I am not comfortable with a SIMPLE being terminated in mid-year, especially if the required notification was provided before the 60-day period. Gary Lesser can give a definitive response on that. I will transfer the post to the SIMPLE board (this seems most SIMPLE questions anyway), as Gary usually checks there.

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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