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SIMPLE IRA & DB Plan


Guest danmar
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The SIMPLE and DB cannot co-exist in 1999. The DB must be effective no earlier than 1/1/2000. SIMPLE deferrals must stop by 12/31/99. If the SIMPLE is a SIMPLE IRA, the prior SIMPLE plan will not affect the DB.

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SIMPLE plan is in existence and employer has been making contributions throughout 1999. The SIMPLE plan will be terminated this year (probably eff. 12/31/99). Can the employer start a Defined Benefit plan this year?

When DB plan is started (whether in '99 or '00), will it be subject to any limitations due to the terminated SIMPLE?

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What if the SIMPLE plan terminated 9/30/99?? Could a DB plan be set up effective 10/1/99??? If so, is any notice required to term SIMPLE plan??

Also, can deductions for the SIMPLE plan be taken on a cash basis rather than the plan year basis???

Thanks.

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Guest Paul McDonald

Absolutely Not! See the instructions to Form 5304-SIMPLE, "Instructions for the Employer", "Which Employers May Establish and Maintain a SIMPLE Plan?" As stated, you are eligible to establish and maintain a SIMPLE plan ONLY if you meet both of the listed requirements. One has to do with the number of employees and the other says:

"You DO NOT maintain during ANY PART of the CALENDAR YEAR another qualified plan with respect to which contributions are made, or benefits are accrued, for service in the calendar year!" (I added the emphasis.)

This is what is known as the "exclusive plan rule" applicable to SIMPLE Plans. If you have a SIMPLE in a given calendar year, you cannot have it co-exist with another active plan. You'll have to wait until 1/1 of the next year to have the next plan exist and have terminated the SIMPLE by the end of the prior year.

They're SIMPLE right!?

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Thanks. It was my understanding that if benefits didn't accrue while a SIMPLE was in existence you can set up a DB. If no one accrues a benefit until 2000, wouldn't that be okay??

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