Simple IRA and 401(k)

[Guest Tbrown]

I have a new client who wants to start a 401(k) in 2008 and make a profit sharing contribution for this year. He currently has a Simple IRA. He has one employee who made ONE contribution to the Simple for 2008 and that has been the only funding. My assumption is that this contribution will be enough to not allow him to have the 401(k) plan for 2008, but thought I would throw that out there and see if anyone else has come across this issue.

Thanks,

Tim

[Guest Sieve]

Your assumption is correct.

[Guest Tbrown]

Your assumption is correct.

Thanks Sieve. I did get a clarification from the owner. He has started a new LLC of which he is the 100% owner. The prior LLC that had the Simple, was one where he was a 50% partner. It doesn't appear to be a controlled group, so I'm thinking that changes the answer. Thoughts?

Tim

[Guest Sieve]

At worst, since there are no SIMPLE IRA regs, you might look to the SIMPLE 401(k) regs (which explain the exclusive plan requirement in 1.401(k)-4©), which, through incorporation of definitions, would include a requirement to identify the employer by reference to controlled group and affiliated service group rules. So, if you have no controlled group, you'd still have to look at the ASG rules--you may not have a controlled group, but that doesn't end the inquiry.

Although these are not the SIMPLE IRA regs, remember that SIMPLE 401(k) provisions were provided under SBJPA '96, the same legislation which brought us SIMPLE IRAs, so you might want to check the legislative history, or the preamble to the 401(k) regs, to see if there is intended to be some parallel between SIMPLE 401(k) rules and SIMPLE IRA rules. I would suspect so.