What are the issues of closing a SarSep and starting a 401(k) Plan? How is the SarSep closed down and will there be a sucessor plan issue when starting the 401(k) plan?

Terminate the plan (Resolution of entity or sole-proprietor]. Provide copy of amendment with explanation of amendment.

The 401(k) deduction limit is reduced by deductible contributions into the SARSEP. Overall limit on elective contributions apply to both plans in the aggregate. [IRC 404(h)(2)]

I think you are referring to the 12 month prohibition on establishing a successor plan. (So as to not artificially provide distribution options without a distributable event).

I believe that this rule is in the 401(k) regs and only applies to terminating a 401(k) and setting up another qualified plan. I know that a Simple is not considered a replacement plan.

However, you are asking about going from a Sarsep to a 401(k). i don't think there is any such analagous rule.

Go for it!