Simple IRA or 401-k to Regular 401-k

[KevinMc]

A small business has a Simple plan (not sure if it is IRA or 401-k) and wants to start a traditional 401-k (safe harbor). Can this be done any time in the calendar year and do participants have to wait a certain time period before rolling the simple into the new plan? Any guidance on notifications/issues would be appreciated.

[Tom Poje]

well, 1.401(k)-4(g) says The plan year for a SIMPLE 401(k) plan must be the whole calendar year. Thus, in general, a SIMPLE 401(k) plan can be established only on January 1 and can be terminated only on December 31.

I think there is a private letter ruling somewhere that says if you have a 2 year old goat to be sacrificed, and it is Friday the 13th, and there is a full moon then you can ignore the regulation.

but really, just what the heck do the regs mean by "in general"

[KevinMc]

Thanks, but can you still start the 401-k say in October even though you will not be terminating the Simple until 12/31?

[Tom Poje]

1.401(k)-4© states the SIMPLE plan must be the exclusive plan for the plan year. this requirement is satisfied if there are no contributions made. on behalf of any SIMPLE plan participant..under any other qualified plan maintained by the employer

[BG5150]

If you "terminate" a SIMPLE plan on 12/31, can you start a 401(k) on 1/1 following if there are assets still in the SIMPLE?

[masteff]

If you "terminate" a SIMPLE plan on 12/31, can you start a 401(k) on 1/1 following if there are assets still in the SIMPLE?

A SIMPLE 401(k) is simply a way to pass ADP and top-heavy. Looking at the IRS Code, subsection 401(k)(11) is entitled: "(11) Adoption of simple plan to meet nondiscrimination tests". I don't see any thing that would make a new 401(k) care about the existence of a frozen SIMPLE 401(k). You'll have other issues, such as the successor plan rule, to be careful of. But nothing that I see by virtue of it being a frozen SIMPLE.