A self-employed taxpayer with no employees established a SIMPLE plan in 2001. He has made a small contribution in 2002. However, he can contribute much more in 2002 to a 401(k) plan. A taxpayer cannot have both a SIMPLE plan and another retirement plan in the same year. But why wouldn't this work: Establish a 401(k) plan for 2002. This makes the SIMPLE plan invalid; therefore, he would have to take a distribution of all 2002 contributions to the SIMPLE.

FYI, taxpayer is over 59 1/2 . He can establish a single 401(k) plan with Oppenheimer at a cost of $15 per year. There is no 5500 reporting required until the asset value reaches $100,000. (I mention these so they will not be response issues.)

Thanks
Sherry

Sherry,

Essentially correct. The excess simple contributions for the year would be treated as EI. It is then removed by the individual, adjusted for gain/loss, generally on or before the tax filing date to avoid the 6% penalty tax. The IRS has unofficially indicated that the 2-year (25% penalty) rule would not apply. If under 59-1/2, the 10% penalty might apply. Convincing the bank that the 25% pernalty doesn't apply may be tough (cd always work it out with an explanation on the tax return). Hope this helps