Is SIMPLE IRA successor to term'd 401(k)

[Kathy]

This is something which I should know but... maybe because the sun is shining or maybe I'm having a brain cramp, I need some direction. If a client terminates a 401(k) plan to establish a SIMPLE IRA plan, can the 401(k) assets be distributed? Cite please?

[Ervin Barham]

I have the same question, so it's not just you. I may be seeing the answer, but not realizing it.

Treas Reg. 1.401(k) refers to any defined contribution plan as noted in Section 414(i), but specfically excludes ESOP's and SEP's. Simple plans are not specifically excluded.

Here's the definition as found in 414(i)for a defined contribution plan.

"IRC, PEN-CODE-VOL, SEC. 414. DEFINITIONS AND SPECIAL RULES. Subsec. (i) Defined Contribution

Plan.--

For purposes of this part, the term “defined contribution plan” means a plan which provides for an individual

account for each participant and for benefits based solely on the amount contributed to the participant’s

account, and any income, expenses, gains and losses, and any forfeitures of accounts of other participants which

may be allocated to such participant’s account."

Can someone help us out?

[Kathy]

I hope you don't mind but I'm adding to my original question in order to get it back up to the top of the list - as the year end approaches I am getting this question more and more from our smaller clients who think that a SIMPLE IRA would work a lot better for them in the long run than the more expensive 401(k). Has anyone seen anything stating that a SIMPLE can be treated as a SEP for the purpose of determining whether or not there is a successor plan to a terminated 401(k)??

Thanks for your help!!

[LCARUSI]

Kathy -

Try calling the IRS Employee Plans Division's taxpayer assistance telephone service at (202) 622-6074/6075 between the hours of 1:30 and 3:30 p.m. Eastern Time, Monday through Thursday.

I have always found them to be very helpful. They'll either give you a quick answer or get back to you pretty quickly.

Please don't forget to post whatever information you get!

P.S. I'm guessing (notice I said guessing) that it does not count as a successor plan.

[Guest TJG]

At the 1997 Western Region IRS/Practitioners Conference during the Q & A session the IRS spokesperson stated that SIMPLE's do not count as successor plans to 401(k) plans.

I got this from the PIX bulletin board.

Hope it helps.