401k Plan Term / Eligiblity for Rollover

[austin3515]

Company A is a sole proprietor, no employees, and sponsors a solo 401k.

Company A wants to buy Company B, which sponosrs a 401k plan with employees. The surviving plan will be Company B's plan. Owner of Company A would like to get his money into an IRA account before he buys the other company. The closing is scheduled so this is all basiclaly a sure thing.

If he terminates his plan (i.e., Company A's Plan) and rolls his balance to an IRA before he acquires company B, will his rollover be deemed ineligible for rollover?

[Kevin C]

I think it would be ineligible for rollover, with a possible exception. Under 1.401(k)-1(d)(4), the "employer" is determined on the termination date. If you follow the cites listed for the definition, it includes members of a controlled group or affiliated service group. After A purchases B, It sounds like A & B would be a controlled group. If so, then A would be considered as the "employer" for B's plan. That would make plan B an alternative defined contribution plan of A.

The exception would be if the owner of A does not participate in plan B for at least 12 months following the rollover. Then, the fewer than 2% exception in the regs would apply.

[QNPG]

I think it would be ineligible for rollover, with a possible exception. Under 1.401(k)-1(d)(4), the "employer" is determined on the termination date. If you follow the cites listed for the definition, it includes members of a controlled group or affiliated service group. After A purchases B, It sounds like A & B would be a controlled group. If so, then A would be considered as the "employer" for B's plan. That would make plan B an alternative defined contribution plan of A.

The exception would be if the owner of A does not participate in plan B for at least 12 months following the rollover. Then, the fewer than 2% exception in the regs would apply.

I thought the successory plan rule pertained to 401k plans and the ability to defer to that successory plan? If the plan terminates prior to purchasing the other company, why wouldn't it be eligible for rollover?

[austin3515]

It doesn't matter whether they actually defer - it only matters if the employer sponsors or maintains another plan.

We've been over this every way till Tuesday and have concluded it cannot be done. (KVein, the new owner will want to participate!)