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Money Purchase Plan and SIMPLE IRA


nancy
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An employer sponsors a SIMPLE IRA for 2000. His fiscal year end is 3/31. It is my understanding that the deduction for fye 3/31/01 would be all contributions made in 2000 (January through December). He would now like to establish a Money Purchase Plan as of 1/1/01 and take a deduction as of 3/31/01 for 25% of compensation paid from 1/1/01 through 3/31/01. Would he be allowed a deduction since he is also taking a deduction for a SIMPLE IRA? It seems that it would need to be a short plan year because if it is a full calendar year, the deduction would be taken 3/31/02 for the minimum funding requirement for 2001. Any thoughts on this?

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My understanding of the rules is that he cannot start the Money Purchase plan until 4/1/01.

The concept is that for any FISCAL year in which you have a SIMPLE plan, you cannot have another plan which benefits the same employees. Therefore, since at some time in FISCAL 3/31/01 there existed the SIMPLE IRA, the employer cannot then have any other plan.

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I think that your deduction is limited to the deferrals and matching during the employer's fiscal year beginning 4/1/00 to 3/31/00. If I'm correct, then the deduciton is limited to the 9 months of 4/1/00 through 12/31/00 - deductible on the 3/31/01 return. The deferrals and match for 1/1/00 through 3/31/00 were deductible on the 3/31/00 return. If the match was not made with each payday, but was held to the end, then I think it would be deductible on the 3/31/01 return. If there are no deferrals during 2001 and the SIMPLE has been publicly cancelled, then I think you could have a short year MPP for 3/31/01. Code section 408(p)(2)(D) (the excusivity paragraph) refers to "contributions that were made for service". So if nothing happens in 2001, there are no contributions/deferrals for service, then there is no plan. And I could be so wrong it is scary.

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