SIMPLE IRA and acquistion

[30Rock]

Company A has a SIMPLE IRA and is purchased in a stock sale by Company B that has a 403b plan. Can the SIMPLE IRA be terminated mid year due to the acquisition so the employees can participate in the 403b plan of the buyer? Thanks!

[Belgarath]

No. They can terminate effective 12/31, and then have them participate in the 403(b) for 2026. Secure 2.0 allows for mid-year terminations, but only if the employer establishes a safe-harbor nonelective 401(k) to replace it. Won't help in your scenario.

[30Rock]

Agree. What about under 332(b) of SEUCRE the 2-year rollover rule - is it waived due to the termination of the SIMPLE IRA on 12/31 and the fact that the new owner has a 401k plan? SECURE implies the employer has to "establish" a 401k but what if it is a buyer and they already have a 401k or 403b? Thank you! 

 

[Belgarath]

Interesting question. When referring to a 401(k), the word "establishes" is used, whereas that word is not used in the context of a 403(b). The truly conservative route would be to wait until the 2-year period has passed. This has another potentially larger advantage - if you interpret the statute as allowing the rollover within the 2-year period without penalty, then those rollover funds remain subject to normal distribution restrictions, whereas if you wait until  after the 2-year period has passed, then roll the funds over, most 401(k) and 403(b) plans allow a withdrawal of rollover funds at any time. This flexibility may be attractive to employees - they tend to get cranky if they are told they can't currently withdraw rollover funds.

[30Rock]

It looks like that is the drawback - they can rollover but will be subject to the distribution restrictions so they have no access to it until age 59 1/2 generally. Makes no sense to me to do the rollover, I think it would have to go into the pre tax source in the plan right?