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small business owner needing help with 410K and SIMPLE


Guest babysilvertooth
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Guest babysilvertooth

I am a small business owner with only 2 employees (out of 5), other than myself, that participate in the 401K plan. It was established with a 'financial planner' company, and the fees are heavy, as they put us in a 401K, and now Safe Harbor for 2012.

I want to change to a SIMPLE with Vanguard.

1) Do I have to open the account before Oct 1, even if we aren't able to contribute until 2013?

2) If I open an account, but don't contribute anything until 2013, is that allowed? as we will still be with the 401L plan for 2012 as we are currently funding it with Match.

3) If I terminate the 401K plan on 'december 31, 2012", can I leave the assets where they are , or do I have to transfer them to the new SIMPLE? Do I have other options for the funds in the 401K.

Thanks for the help. Being such a small business, i have been steered in the wrong direction by the financial company into 401K that have high fees, and of course he doens't want me to leave, but I it is not work the costs.

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1) Do I have to open the account before Oct 1, even if we aren't able to contribute until 2013?

No, all you have to do in ensure you terminate your 401(k) plan by December 31st, 2012. A SIMPLE IRA for 2012 is not an option for you (due to the exclusive plan rule for SIMPLE IRAs). Terminating your 401(k) in 2012 will allow you to start a SIMPLE IRA in 2013. You must, then, ensure you establish your SIMPLE IRA by October 1, 2013. There "may" be a implication by terminating your 401(k) within 5 years, but this shouldn't be a major issue given your situation.

2) If I open an account, but don't contribute anything until 2013, is that allowed? as we will still be with the 401L plan for 2012 as we are currently funding it with Match.

You don't want to do that. It's too easy to just open the SIMPLE IRA when you are ready to fund.

3) If I terminate the 401K plan on 'december 31, 2012", can I leave the assets where they are , or do I have to transfer them to the new SIMPLE? Do I have other options for the funds in the 401K.

You will not be able to leave them in the 401(k), nor transfer them to the SIMPLE IRA. You would, however, be able to roll them over to an IRA.

Thanks for the help. Being such a small business, i have been steered in the wrong direction by the financial company into 401K that have high fees, and of course he doens't want me to leave, but I it is not work the costs.

This is unfortunate, and happens too often.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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Before you go down the road of terminating your 401(k) plan have you put the various services out to bid?

I don't know what you find expensive, but you might want to look for some local Third Party Administration firms (TPAs), or check with your CPA if he knows of any TPAs.

Not trying to insult your intelligence maybe you already did that, but with limited facts given in a forum like this I just didn't want to assume.

You might find a TPA that can work with a broker or an insurance company to give you a solid package of record keeping and administrative services for a price you like.

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"establish your SIMPLE IRA by October 1, 2013"

??????? Full-year particpantion in 2013 would be nice.

Pushing the "Like" button. You're correct, especially since there are individuals already deferring (so there would be no lapse).

I was merely stating the parameters (rules).

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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