Employer with SIMPLE IRA wants to adopt a 401(k)

[Guest Judy S]

An employer with a SIMPLE IRA wants to terminate that plan and adopt a 401(k) plan for 2005. However, he has already made a contribution of employee deferrals to the SIMPLE plan for 2005. Does this preclude him from adopting a

401(k) in 2005? If he did adopt a 401(k) in 2005, would that only affect the SIMPLE plan, or would it also affect the 401(k) in some way?

[Ron Snyder]

It doesn't preclude the 401(k) adoption; it does preclude claiming the tax deduction for both plans for the year. Presumably the amounts contributed to the SIMPLE IRA would never become tax deductible to the employer.

[GBurns]

Can he rerun the payroll to rescind the deductions?

Assuming that the rules allow him to adopt a 410(k) and enjoy the tax benefits in the same year that a SIMPLE exists, then this is what he could consider.

[Earl]

review the IRA board. There are discussions on "invalidating the SIMPLE" and how to do the reporting on the W-2

[jevd]

http://www.reish.com/practice_areas/Techni...ps/IRStip71.cfm

Check this site also

[Guest Judy S]

Thanks jevd and Earl. This is the information I was looking for. I appreciate your input.

[GBurns]

But how do you return the money?

[jevd]

http://www.irs.ustreas.gov/pub/irs-drop/rp-03-44.pdf

Check section 6.10 of above rev proc.

This ithe only definitive information I have been able to find. The Rev Proc deals with the various corection programs under EPCRS