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Terminating SIMPLE IRA and starting 401(k)


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A client terminated their SIMPLE IRA effective 12/31/11. They are starting a 401(k) effective 1/1/12. They have the 2011 matching contribution and last 2011 deferral to deposit yet. Can they deposit this money in January 2012 without violating the exclusive Plan rule?

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From IRS Code Sec 408(p)(2)(D): "An arrangement shall not be treated as a qualified salary reduction arrangement for any year if the employer (or any predecessor employer) maintained a qualified plan with respect to which contributions were made, or benefits were accrued, for service in any year in the period beginning with the year such arrangement became effective and ending with the year for which the determination is being made."

The 401(k) comes into existence on 1/1 and means you can't have a SIMPLE for 2012. Your deposit is for a benefit accrued in the SIMPLE for 2011. Don't overthink it.

Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra

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