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Terminating SIMPLE IRA


Guest WD2
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We have a new client that would like to discontinue their SIMPLE IRA and begin a 401(k). We intend to make this transition on 1/1/09 to avoid maintaining 2 plans in one year. However, how do you actually go about terminating the SIMPLE IRA? Is it simply a board resolution or amendment? What are the notice requirements? Once the sponsor terminates his sponsorship of the SIMPLE, participants can then rollover their accounts to a 401(k) - so long as their first deposit was at least 2 years prior, correct? Thanks!

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Three things:

In order for a SIMPLE IRA to be valid for 2009, you would have to meet the notice requirements for 60 days. If you do nothing, then you do not have a SIMPLE IRA.

The exclusive plan rule is only with respect to "contributions" during the year; not whether the plan exists. So, no notice and no contributions means no SIMPLE IRA exclusive plan rule violation possible.

While not technically required, it would be a good idea for the client to document the decision to terminate the simple in a Resolution or into the minutes of the company.

Summary: Unlike qualified plans, these arrangements are terminated by doing nothing. However, a resolution (or written minutes) is a safe documentation of intent.

Hope this helps.

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