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Simple IRA Required to be continued for 2006?


PMC
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Employer has a Simple IRA. Now wants to establish a 401(k). No employee or employer contributions have been deposited into the Simple IRA so far in 2006.

If the employer failed to provide the 60 day 'EE Notice in Nov. '05, could the employer decide to discontinue/terminate the Simple IRA for 2006?

What if the Simple IRA was using the 2% nonelective? Would the employer still be required to make that contribution thereby precluding the employer from establishing the 401(k) for 2006?

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The plan can be amended, provided the amendment is consistant with the notices given before the plan year began. Here, no notice or notices [two are required] were distributed. Arguably, there is no SIMPLE IRA plan for 2006 at this moment or the election period hasn't yet started. [There may be a $50 per day penalty for failure to give the required notice(s).]

On the other hand, contributions to a 401(k) plan would invalidate the SIMPLE IRA plan for 2006 (regardless of whether the proper notice(s) were given).

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