Terminating Simple IRA and adopting a 401(k) plan

[eilano]

Can an employer have a Simple IRA for 2001, decide to stop the Simple IRA during the year and then adopt a 401(k) qualified plan during 2001?

[Bill Berke]

No, if you want the SIMPLE contributions to be deductiible. The law is quite specific - to be valid the SIMPLE plan is the only plan permitted in any year - IRC 408(p)(2)(D). The other question is could you withdraw (pay to the employees) the SIMPLE conributions and the required employer match deposited during this year and then install a 401(k)? I don't know, but withdrawing the SIMPLE money will incur the 25% tax and income tax and who knows what else.