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Adoption of 401k with SIMPLE

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I understand the SIMPLE must be the only plan of the employer for the year. But not sure what that means.

I have a potential new client who has a SIMPLE for 2014. Can he establish a 401k in 2014 making no contributions for 2014 but accept rollovers?

He wants to take advantage of the increased investment flexibility with no custodian.



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I'm assuming no deferrals/contributions have been or will be, or are required to be made to the 401(k) for 2014? In other words, ONLY the rollover is contemplated?

Assuming all that good stuff, and assuming that you are past the 2-year period, etc., etc., then the rollover to the 401(k), in and of itself, would not cause a violation. See the following from IRS Notice 98-4.

Q. B-3: Can an employer make contributions under a SIMPLE IRA Plan for a calendar year if it maintains another qualified plan?

A. B-3: Generally, an employer cannot make contributions under a SIMPLE IRA Plan for a calendar year if the employer, or a predecessor employer, maintains a qualified plan (other than the SIMPLE IRA Plan) under which any of its employees receives an allocation of contributions (in the case of a defined contribution plan) or has an increase in a benefit accrued or treated as an accrued benefit under §411(d)(6) (in the case of a defined benefit plan) for any plan year beginning or ending in that calendar year. In applying these rules, transfers, rollovers or forfeitures are disregarded, except to the extent forfeitures replace otherwise required contributions. For purposes of this Q&A B-3, "qualified plan" means a plan, contract, pension or trust described in §219(g)(5) and includes a plan qualified under §401(a), a qualified annuity plan described in §403(a), an annuity contract described in §403(b), a plan established for employees of a State, a political subdivision or by an agency or instrumentality of any State or political subdivision (other than an eligible deferred compensation plan described in §457(b)), a simplified employee pension ("SEP") described in §408(k), a trust described in §501©(18) and a SIMPLE IRA Plan described in §408(p).

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You are correct, no anything in 2014 other than IRA rollover(s) into 401k plan.

The 2014 rollover would not come from the SIMPLE. SIMPLE would continue for 2014 unchanged.

2015 rollovers at participant election heeding the SIMPLE 2 year rule when 401k contributions would start.

Thank you very much.


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