401(k) Plan & SIMPLE IRA

[Guest MJM]

Can an employer terminate its existing 401(k) plan as of 12-31-01 and establish a SIMPLE IRA as of January 1, 2001? Is there a problem with the IRC regs. that prohibit distribution from a terminated 401(k) plan where the employer establishes a defined contribution within 1 year?

[alanm]

Yes, you can't allow distributions: Treas. Reg 1.401k(d)(3)

[PMC]

Assume the Simple IRA is to be established 1-1-02?, not 1-1-01.

Is a Simple IRA considered a successor plan?

[alanm]

In the first place, I assume you froze the 401k plan in 2001 and didn't contribute to it because you can't contribute to a 401k and a simple IRA plan in the same year. For successor plan purposes, the simple IRA plan is a successor plan if started before 1/1/2003. That is one year after terminating the 401k on 12/31/01. Your only course is to freeze the 401k and let it sit, if you have started the simple IRA before that date.

[MJ Hartman]

just for clarification, I thought that simple IRA's weren't considered sucessor plans because they don't fall under code sec. 401(a)...so couldn't the SIMPLE IRA be set up immediately after a plan year in which the 401k terminated; ie plan terminates 12/31/01, Simple gets set up 1/1/02. and the 401k assets could be distributed during the 2002 plan year?