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M Norton

from SH 401(k) to SIMPLE

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Physician with calendar year SH 401(k) wants to switch to SIMPLE IRA for 2020.  Total 5 employees plus the doctor, but only two employees plus doc contributing. Does he have to formally terminate the 401(k) as of 12/31/2019 or can he just not allow contributions to 401(k) beginning 1/1/2020.  (There may be additional contributions in 2020 for the 2019 plan year.)  

Where is this addressed on the IRS website?

Thanks!

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I believe the requirement is you cannot contribute to a SIMPLE and a qualified plan for the same tax year, so I don't think 401k needs to formally terminate, but why maintain, file 5500's, etc.?

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M Norton - you might find the below link helpful to answer your questions

https://www.irs.gov/retirement-plans/simple-ira-plan-faqs-establishing-a-simple-ira-plan

Can I contribute to my SIMPLE IRA plan if I maintain another retirement plan?

Generally, you can’t contribute to a SIMPLE IRA plan for a calendar year if you maintain another retirement plan and any of your employees receives an allocation or accrues a benefit under the other plan during that calendar year (the “one-plan requirement”).

However, you can have a SIMPLE IRA plan even though you maintain another retirement plan if:

  • The other plan is only for employees covered under a collective bargaining agreement, and the SIMPLE IRA plan excludes these employees; or
  • Your business was part of an acquisition, disposition or similar transaction during the current calendar year or the 2 prior calendar years, and only your separate employees participate in the SIMPLE IRA plan.

If you maintain another retirement plan and one of the exceptions above does not apply, you must correct this mistake.

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Be careful if there are any participants in the 401(k) Plan who have employer discretionary (profit sharing) accounts that are not fully vested. Should one of them terminate and have forfeitures that are reallocated, that could be considered an allocation that blows eligibility for a SIMPLE IRA.

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