SIMPLE IRA for an LLC and 401k Plan for a C-Corp - same owner

[Jen Preston]

Client currently owns an LLC that sponsors a SIMPLE IRA for herself and one other W-2 employee.  Same client wants to start a C-Corp and new 401k Plan.  I understand that this creates a Controlled Group.  But is this even allowed?  What needs to happen with the SIMPLE IRA if so?

[Lou S.]

I believe it creates problems for the SIMPLE-IRA that would need to be corrected as you are not allowed to maintain another plan if you sponsor a SIMPLE-IRA for the year. I'm pretty sure that extends to all members of a controlled group. There is a transition rule but I think that applies to M&A and might not apply to a startup. I don't deal with SIMPLE-IRAs so I'm not 100% sure on the correction but I think it involves disgorging the IRA contributions for the year of failure.

There are number of similar threads about wanting to start a plan to replace a SIMPLE-IRA (though I don't know if your exact fact pattern) so you might search the site for threads on SIMPLE-IRA.

[CuseFan]

You cannot sponsor (in CG) any other plan if you have a SIMPLE.

SECURE 2.0 will let you terminate a SIMPLE mid-year and replace it with a safe harbor 401(k) plan but not until next year (2024).