Start 401(k) same year as SIMPLE IRA?

[BG5150]

I have a client that has a SIMPLE IRA, and they want to start a 401(k) plan this year.

I know that the two are not supposed to coexist in any particular year.

However, could I just start the 401(k) plan up and just say the contributions this year to the IRA were ineligible? Return the funds to the employees and pay the excise taxes? (We are only in March. It may be worth it to the owners to do that).

[Bird]

I think in theory what you propose is ok, but the "just" part is easier said than done. Getting the custodian to return SIMPLE money as anything other than a regular distribution is...challenging.

[Jim Chad]

Agree with Bird on both counts.