Simple plan... new 401(k) plan... Cares Act

Timing is everything

A CPA has asked me a question.  His client has a Simple plan and I guess they want a 401(k) plan.  I know that you can not fund both plans at the same time (and dare I go further, you can't even have both plans in existence at the same time?).  They want to terminate the Simple and establish a 401(k).

• If they funded the simple during 2022 they can not adopt a 401(k) until 2023 (correct?)
• He is concerned about the Secure Act, a mandate on funding a 401(k) into next year.  Did I miss something? I'm going to ask him what he means.

This in my mind shouldn't be difficult.  Maybe he is reading into something too much? 

1 hour ago, Basically said:

you can't even have both plans in existence at the same time

You can't have both plans existing in the same calendar year. You are correct about not starting the 401(k) until 2023 (unless the company is on a fiscal year; that can make a hash of things).

1 hour ago, Basically said:

He is concerned about the Secure Act, a mandate on funding a 401(k) into next year.  Did I miss something? I'm going to ask him what he means.

Yes, ask him what he is talking about.

Thanks for the reply.  So terminate the Simple now (before 12/31/2022) and roll all monies into IRAs.  Then setup a 401(k) plan for 2023.  Easy peasy like that? 

I tend to overthink things that I understand.  

No need to do anything with the SIMPLE-IRA money - it is in fact an IRA. The critical part is "terminating" and not funding it. (I don't know that there is a formal termination process; it's more a matter of deciding not to do it and communicating that appropriately.)

SIMPLEs not my area but to terminate I think there is some notice you give employees before the year starts that you are no longer going to offer the SIMPLE and I think that date may be fast approaching.

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-simple-ira-plans#terminating

How do I terminate my SIMPLE IRA plan?

Step 1: Notify your employees within a reasonable time before November 2 that you'll discontinue the SIMPLE IRA plan effective the following January 1.

Step 2: Notify your SIMPLE IRA plan's financial institution and payroll provider that you won't be making SIMPLE IRA contributions for the next calendar year and that you want to terminate your contributions.

Step 3: You should keep records of your actions, but you don't need to notify the IRS that you have terminated the SIMPLE IRA plan.

Example: Acme Company decided on November 18, 2014, to terminate its SIMPLE IRA plan as soon as possible. The earliest effective date for the termination is January 1, 2016. Acme must notify its employees before November 2, 2015, that it won't sponsor a SIMPLE IRA plan for 2016.