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SIMPLE IRA sponsor sells practice


M Norton
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Single-member LLC dentist sponsored a SIMPLE IRA for about 8 years.  He sold his practice mid-2018 and all employees now work for the new dentist's company.   What happens to the SIMPLE IRA accounts?  Should notices be provided to the employees or to the custodian of the SIMPLE IRA accounts? Could the new dentist assume sponsorship of the SIMPLE IRA or would he need to start a new plan if he wants one?

Thanks!

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I like to think of the "SIMPLE" part as a vehicle to get money into an "IRA."  In other words, the participants really have their IRA accounts, even though they have the word "SIMPLE" on them, and can do whatever they want.  (There is of course the higher early w/d penalty - 25% in the first 2 years of participation.)

I can't say off the top of my head if some kind of notice to the participants is required - there certainly should be some kind of reconciliation of required employer contributions to make sure they have all been deposited.  I don't think there is a requirement to notify the custodian but it makes sense to touch base just so their records are updated.

As far as the new owner, he'd need to start a new plan.  There might be some investment benefits to consolidating assets but that would be an individual decision by each participant.

Ed Snyder

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18 hours ago, Bird said:

I like to think of the "SIMPLE" part as a vehicle to get money into an "IRA."  In other words, the participants really have their IRA accounts, even though they have the word "SIMPLE" on them, and can do whatever they want.  (There is of course the higher early w/d penalty - 25% in the first 2 years of participation.)

I can't say off the top of my head if some kind of notice to the participants is required - there certainly should be some kind of reconciliation of required employer contributions to make sure they have all been deposited.  I don't think there is a requirement to notify the custodian but it makes sense to touch base just so their records are updated.

As far as the new owner, he'd need to start a new plan.  There might be some investment benefits to consolidating assets but that would be an individual decision by each participant.

Agreed: 1) No notice is required to employees (they know the old employer is gone). 2) No notice to custodian (they couldn't care less and wouldn't do anything with a "notice" anyway). 3) New employer adopts his own Simple (of course, I refer to them as "STUPIDS" which is what they referred to in Congress when they were proposed!) but the employees can use the same IRAs as funding if they want. 4) The existing accounts just keep going on their merry way until the owner decides she wants to put her money someplace else.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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Agree with Bird and Larry Starr, but we have typically done a one-paragraph notice to the employees explaining date of last contribution and that they should just continue on with their IRAs as their own.

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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3 hours ago, Luke Bailey said:

Agree with Bird and Larry Starr, but we have typically done a one-paragraph notice to the employees explaining date of last contribution and that they should just continue on with their IRAs as their own.

I would ordinarily suggest the same as just good employee relations, but in this case the employees were all terminated and went to work for the new practice so having the old practice send them a note that they are not making any more contributions to their SIMPLE is just superfluous I would suggest.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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20 hours ago, Larry Starr said:

I would ordinarily suggest the same as just good employee relations, but in this case the employees were all terminated and went to work for the new practice so having the old practice send them a note that they are not making any more contributions to their SIMPLE is just superfluous I would suggest.



Depends on facts and circumstances, Larry.

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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Just a reminder that in addition to the higher early withdrawal penalty for SIMPLE IRAs less than 2 years old, such accounts can only be rolled over or transferred to another SIMPLE IRA.  And might mention that only one rollover of an IRA of any kind per individual is allowed within any 365 day period. Latter is a trap for individuals who elect to consolidate IRAs and go the rollover rather than transfer route. Participants in the presented scenario might appreciate a letter with this information spelled out a little more than is necessary in this forum.

 

 

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5 hours ago, Luke Bailey said:

Depends on facts and circumstances, Larry.

Sure; we both can craft a situation where the notification to the employees COULD be useful, but I think in business terminations, those would be few.  FWIW.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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