Simple Ira

[Guest LTurner]

I was under the impression that a SIMPLE plan using form 5304 had to 're-adopt' the plan each year and give notice to employees prior to the plan year.

If an employer understood it this way, adopted a new SIMPLE IRA on 4-1-01, effective 4-1-01, and the only notice given was for the year 2001. Do they still have a SIMPLE???

They presumed not and in 2002 adopted a profit sharing plan. However, in year end work with their new CPA it is discovered that a bookkeeper who is no longer there did send in salary deferral contributions for an employee. Should these be handled with correcting distributions?

[Gary Lesser]

The contributions to the Simple-IRA sd be reported on Form W-2 for 2002. The employee should remove the excess from the Simple-IRA on or before the due date of his or her return following rules similar to IRA excesses. It is helpful if the employer communicates this all to the employee in writing so the employee can use it in connection with the request for making a timely corrective distribution and have it coded correctly as an "excess" contribution (i.e., not subject to penalty).