QP and SIMPLE in the same year

[JPIngold]

I have a business client who is getting grief from their bank requiring them to inject some capital into the business. Unfortunately, their money is tied up in long-term construction projects and cash is tight. The company has a SIMPLE IRA for two of the three owners to participate in. The other owner and the rest of their employees are in union plans and are subject to collective bargaining agreements. I know, they should have listened to me years ago and establish a 401(k) plan instead of the SIMPLE.

Will the following idea work???  Have the company establish a profit-sharing plan now that accepts rollovers and allows plan loans. Roll enough money into the PS plan from the SIMPLE and then have the two owners take loans sufficient to satisfy the bank's capital injection requirement. No contributions will be made to the PS plan for 2018 so as to not violate the exclusive plan requirement as it is my understanding this requirement is satisfied as long as no employee accrues a benefit under a QP in the same year as the SIMPLE IRA is maintained.

We can then implement 401(k) provisions as of 1/1/2019 and have them cease making SIMPLE IRA contributions in 2018 and roll the rest over to the 401(k) PS plan in 2019.

Any problems with this idea?

Thanks in advance.

 

[ETA Consulting LLC]

That could work.

Good Luck!