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Effective Date for Simple IRA Termination


jlea
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Client terminating Simple IRA Plan at year end. Prototype sponsor says elective deferrals and matching contributions need to run through 12/31. Pay period ends 12/21. Client's accountant is saying that compensation earned after 12/21 will not be included in 2008 W-2, instead included in 2009 W-2.

Prototype sponsor says Publication 560 addresses. I've read that publication, Notice 98-4, Form 5305, and Section 408(p). Of course, there are references to the Simple IRA running on the "calendar year" and termination at the end of the "calendar year." Nothing conclusively states that means all calculations running through 12/31 itself.

Anyone encountered?

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Are you asking if the comp "earned" after 12/21, paid in 2009, has to be included as comp for the SIMPLE? And the prototype sponsor is saying "yes?"

I think it is pretty well established that the pay date is relevant and nothing else. That is, comp is going to be W-2 comp.

Ed Snyder

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The plan sponsor is saying that salary deferrals and matching contributions must be made on all comp earned through 12/31. They point to Publication 560 as support for the idea that contributions must be made to the end of the calendar year (they interpret this as literally through 12/31).

The employer's last 2008 pay period ends on 12/21. Comp earned after that date will not be paid until 2009 (and consequently will be on the 09 W-2).

I would like to find support for the proposition that because the employer operates on a cash basis, it is sufficient to end salary deferrals and matching contributions on comp earned through 12/21.

Anyone encountered this or analytically similar situations?

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If they are obsessed with Pub 560 then they ought to keep reading...under Compensation, "Other options," all three choices pretty clearly involve actual payments made - either subject to WH, or W-2, or SS. They don't necessarily have those choices in a SIMPLE, but I think it's enough to get them over it.

Ed Snyder

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If they are obsessed with Pub 560 then they ought to keep reading...under Compensation, "Other options," all three choices pretty clearly involve actual payments made - either subject to WH, or W-2, or SS. They don't necessarily have those choices in a SIMPLE, but I think it's enough to get them over it.

Agreed. 1000%. Some people just want to overthink the SIMPLE :D...

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