SIMPLE IRA & 401k start-up

[Guest KeithinClev]

If a company has a SIMPLE IRA and they want to terminate that plan and start up a 401k plan, can that be done at anytime during the year? Or does it have to be done at the end of a plan year?

2nd part - Does the 25% tax penalty occur if they terminate their SIMPLE IRA and some choose to roll into the 401(k) if they are still in the first two years?

Any help would be appreciated.

Thanks.

[Guest jhilliard]

2nd part - Does the 25% tax penalty occur if they terminate their SIMPLE IRA and some choose to roll into the 401(k) if they are still in the first two years?

Participants can roll from a simple IRA to a 401k plan BUT only if the participant was in the simple IRA for 2 years.

[Lori Foresz]

Hi,

I think your question is almost identical to mine posted on Monday to which no one has responded. From what I have read an employer cannot make contributions under a SIMPLE plan for any year in which the employer also maintains a qualified plan under which any of its employees receives an allocation of contributions for a plan year beginning or ending within that calendar year.

So, presumably, an active SIMPLE plan cannot co-exist in any calendar year with an active 401(k) plan or else the simple contributions will all be treated as excess contributions.

As far as if the 25% penalty would apply I can't find any exception to that rule when a plan terminates and a participant has less than 2 YOP at the DOT. Maybe the SIMPLE could be frozen and then once everyone has two YOP it could be terminated. That way all participants could roll into the 401(k) plan.

Just a thought.

Hope this helps. Maybe some one else will respond. Good Luck!

[Appleby]

If the SIMPLE IRA is terminated in mid-year and a 401(k) plans is established for the same year, the SIMPLE IRA contributions for that year would be disqualified (for lack of a better term)…remember…a SIMPLE cannot be maintained for any year that the employer maintains another plan for the employees covered under the SIMPLE…

See http://benefitslink.com/boards/index.php?showtopic=22651 for information you may find helpful…