SIMPLE

[PS]

Hi, 

Participants from a Terminating 401k plan can transfer the funds to a SIMPLE account? 

Thanks

 

[Luke Bailey]

PS, generally, yes, but for the fine points check out here https://www.irs.gov/pub/irs-tege/rollover_chart.pdf and here https://www.irs.gov/retirement-plans/simple-ira-withdrawal-and-transfer-rules#:~:text=After the 2-year period,rolled over in your income.

 

[PS]

On 7/13/2022 at 5:39 PM, Luke Bailey said:

PS, generally, yes, but for the fine points check out here https://www.irs.gov/pub/irs-tege/rollover_chart.pdf and here https://www.irs.gov/retirement-plans/simple-ira-withdrawal-and-transfer-rules#:~:text=After the 2-year period,rolled over in your income.

 

Thank you!  The plan sponsor would like to convert the 401k plan to a SIMPLE IRA is it possible? 

[Luke Bailey]

5 hours ago, PS said:

Thank you!  The plan sponsor would like to convert the 401k plan to a SIMPLE IRA is it possible? 

PS, maybe someone else on this board knows, but I don't. With a 401(a) plan, the plan sponsor generally has the power to amend the plan into another type of plan (but not from DB to DC or vice versa), or to cause the plan to be merged into another plan. Here, you're talking really about terminating the K plan and requiring rollovers to the IRAs. Of course, the employer could suggest to the employees that they do that, but I am unaware of an ability to require it.

Why does the plan sponsor care? When the K plan terminates everyone will be fully vested, of course.

Why is it important to the plan sponsor that the SIMPLE start out with the K dollars, rather than just starting afresh and letting participants roll to their SIMPLE IRAs if they want?

[Bird]

On 7/15/2022 at 2:39 PM, PS said:

Thank you!  The plan sponsor would like to convert the 401k plan to a SIMPLE IRA is it possible? 

No.  A SIMPLE IRA is just a special kind of IRA, and it effectively becomes a regular IRA after the 2 year initial period (although "SIMPLE" will remain on the registration).  The sponsor would have no control over forcing employees into the IRAs and no control once money is in.

Don't forget you can't, or aren't supposed to, have a SIMPLE IRA and qualified plan in the same calendar year.

[Bri]

What about a SIMPLE 401(k) where it's still a qualified plan using the SIMPLE rules?

(I'll be honest, I just double-checked on those since I never hear of anyone doing them.)

[Luke Bailey]

1 hour ago, Bri said:

What about a SIMPLE 401(k) where it's still a qualified plan using the SIMPLE rules?

(I'll be honest, I just double-checked on those since I never hear of anyone doing them.)

That's a good point, Bri. That would allow you to just convert. But of course a SIMPLE 401(k) is not quite as simple as a SIMPLE IRA, so there would be a trade-off.

[Bird]

1 hour ago, Luke Bailey said:

That's a good point, Bri. That would allow you to just convert.

I agree. But there would be little or no point to having a SIMPLE k vs regular k; that's why they essentially don't exist in the wild.

[Bill Presson]

29 minutes ago, Bird said:

I agree. But there would be little or no point to having a SIMPLE k vs regular k; that's why they essentially don't exist in the wild.

It's like the worst of each type combined.