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401(k) to replace Simple IRA


Guest MrBoldman
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Guest MrBoldman

I have a client who wishes to "upgrade" to 401(k) Plan from a SIMPLE IRA. Can they implement the 401(k) in 2005 even thought they have already had dedcutions in the SIMPLE IRA for 2005? Can the SIRA have a short plan year?

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To save you some trouble looking for prior threads...

A SIMPLE can't exist in the same year as a 401(k). That doesn't mean you can't adopt a 401(k); it means that if you do the SIMPLE is not valid for that year. So then you have a godawful mess with payroll issues, contributions that have to be recharacterized, etc. I wouldn't try this unless there were huge savings to be gained under another plan; just make a clean break at the end of the year.

Ed Snyder

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If you only have a couple of employees the payroll issues were not that bad.

If you are only looking to do the 401k max vs the SIMPLE, why bother.

If you are looking at Profit Sharing and 415 max, its worth it, I think anyway.

CBW

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Guest jusducki

Speaking of SIMPLEs, I have another question - if new 401(k) plan allows for rollovers, including IRAs, once the SIMPLE plan is closed can the account balance be rolled into the 401(k)? My thought was yes but someone said he thought there was a two year wait to do this. If true, why? Thanks.

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There is a two year wait or a 25% penalty may be imposed. However, see the NESTEG bill re-introduced in the Senate. This will remove the 2 year wait among other things.

JEVD

Making the complex understandable.

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Guest rgorman

My understanding was that as long as you have been a participant in the SIMPLE for two years, then there was no 25% penalty to distribute the funds. All contributions do not have to be in for two years. We just worked with one where the SIMPLE has been around since 1999, stopped deferrals into SIMPLE as of 12/31/04 and we will be rolling those assets into the 401(k) PS that was effective 1/1/05.

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There is a two year wait or a 25% penalty may be imposed.

...and the amount would be considered ineligible for rollover , unless the account has met the two year requirement

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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