SIMPLE IRA Year End/Final Contribution

[Guest Aaron Taylor]

SIMPLE IRA is terminating at year end and a Safe Harbor 401(k) beginning the next year. All notices have been provided to employees and both the terminationm and subsequest establishment are in good order.. HOWEVER, contribution cannot be made to a SIMPLE and a 401 in the same year.

Employees receive a paycheck FOR HOURS WORKED from 12/15 throgh 12/27 2008 - however these 2008 hours worked are cut to the employees on January 2, 2009, and it doesn't hit their SIMPLE accounts until January 9, 2009. With a 401(k) being established for the 2009 calendar year, how do we avoid any potential problems or 'red flags' with the IRS, since a contribution to both a SIMPLE and a 401 in the same year is not allowed...????

[J Simmons]

Don't make a SIMPLE contribution on the 1/2/2009 payroll. Rather, count such toward the 401k plan.

[Guest Sieve]

I would agree with John: paycheck is in 2009, so deferrals should go into 401(k) for that paycheck.

For what it's worth, however, the exclusive plan language of IRC Section 408(p) (SIMPLE IRA) is virtually the same as for a SIMPLE 401(k) (IRC Section 401(k)(11) and 1.401(k)-4 regs), and both are keyed to contributions to another plan which are made or accrued for services during the year--i.e., the critical timing is not when the contribution is made, I believe, but when the services were performed which relate to the contribution. So, the employer match or NEC can still be made to a SIMPLE during 2009 for 2008 services, allocated as of 12/31/2008, even while a 401(k) is in place for 2009 as in your facts.