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Exclusive Plan Rule


Guest Pat Metallic
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Guest Pat Metallic

I have a 401(k) plan with a 1/31 plan year end. A new owner wants to explore starting up a SIMPLE IRA for those 401(k) participants. My understanding is that if a benefit accrues in a plan year, a SIMPLE can not be implemented in a calandar year that starts within that plan year. To prevent the exclusive plan rule from being violated, can the new owner terminate the 401(k) plan before the end of the calendar year?

For example, the current plan year is 2/1/08 -1/31/09. Can he terminate the 401(k) before 12/31/08 and open a SIMPLE IRA effective 1/1/09?

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  • 1 month later...

Only if the plan year is also first amended to end on December 31 and no 401(k) contributions made for the 2009 plan year. The short plan year could also cause other complications (and additional costs to be incurred). If the 401(k) were limited to collectively bargained employees a special rule permits both plans to exist at same time (assuming the SEP excludes such employees).

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