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switch from SH 401(k) to SIMPLE - timing of 401(k) deposits


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ER sponsors a calendar-year Safe Harbor 401(k) with 2% NEC.

They want to change to a SIMPLE IRA for 2010.

I understand that you cannot contribute to a SIMPLE IRA in the same calendar year that you make contributions to a qualified plan.

An associate believes that means you cannot make deposits to the 401(k) in 2010 for contributions accrued for the 2009 plan year.

Does the ER really have to make all contribution deposits for 2009 before 12/31/09 in order to avoid violating the exclusive plan rule?

Thanks.

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ER sponsors a calendar-year Safe Harbor 401(k) with 2% NEC.

2%, really?!

Does the ER really have to make all contribution deposits for 2009 before 12/31/09 in order to avoid violating the exclusive plan rule?

No.

Sorry - mistyped - they're doing 3% NEC for SH 401(k), will probably do 2% for SIMPLE.

Thanks.

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I don't work with SIMPLE plans, but is that allowed? If one has a regular 401(k) plan, can one then sponsor a SIMPLE IRA plan? I thought they were for employers who have never sponsored a qualified plan.

See code section below regarding SIMPLE IRA plans:

408(p)(2)(D) ARRANGEMENT MAY BE ONLY PLAN OF EMPLOYER. --

408(p)(2)(D)(i) IN GENERAL. --An arrangement shall not be treated as a qualified salary reduction arrangement for any year if the employer (or any predecessor employer) maintained a qualified plan with respect to which contributions were made, or benefits were accrued, for service in any year in the period beginning with the year such arrangement became effective and ending with the year for which the determination is being made. If only individuals other than employees described in subparagraph (A) of section 410(b)(3) are eligible to participate in such arrangement, then the preceding sentence shall be applied without regard to any qualified plan in which only employees so described are eligible to participate.

408(p)(2)(D)(ii) QUALIFIED PLAN. --For purposes of this subparagraph, the term "qualified plan" means a plan, contract, pension, or trust described in subparagraph (A) or (B) of section 219(g)(5).

As stated above, it applies on a year by year basis. An employer with a previous plan may still establish a SIMPLE IRA but it must be the only plan accruing benefits or contributions made for that year as I understand it. Emphasis added.

JEVD

Making the complex understandable.

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