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Can acquired employer with SIMPLE IRA continue to maintain the plan after acquisition?


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We are a small employer with a SIMPLE IRA.  We are being acquired through a stock transaction by a larger company with a 401(k).  Can we continue to maintain the SIMPLE IRA as a frozen plan (no future funding) or are we required to terminate it by the end of the 2 year transition period?

If we terminate the SIMPLE IRA, what are the tax consequences?  

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Yes, they have a 401(k).  I think I've figured this out.  The client was worried that terminating the plan would have negative tax consequences.  However, termination doesn't trigger distributions in the case of a SIMPLE IRA, so I think we're just going to terminate the SIMPLE IRA and let participant's have the choice of taking a distribution, doing a rollover, or just leaving their money in their accounts for now.

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There is a grace period until the end of the next plan year when the target could continue to maintain the SIMPLE for its legacy employees. See IRC sec. 408(p)(10). I don't think you can terminate it before the end of the year. See https://www.irs.gov/retirement-plans/terminating-a-simple-ira-plan.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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