Hi,
I am new to the SIMPLE world, so any help is greatly appreciated. An employer is aniticpating selling the assets of his business sometime during 2004 and all employees (except of the owner and wife) will become employees of the buyer. After the sale, the owner hopes to set up a DB plan and accrue a contribution for 2004 for both him and his wife. Problem. The corporation currently has a SIMPLE IRA. So, since a SIMPLE IRA and a DB plan cannot exist in the same calendar year, the SIMPLE must be terminated before any 2004 contributions are made (i.e ASAP) and a 401(k) plan put in immediately to accomodate the former SIMPLE IRA deferrals and match for participants.

Question. Will this logic work? It seems that it will but I may be missing something basic.

Second. Is the termination of the SIMPLE the same as a QP? Just adopt a resolution to terminate and require distribuitions or rollovers within 12 months of the termination date.

Third. Will employees with less than 2 YOP in the SIMPLE be hit with the 25% pre-mature W/D penalty and be precluded form rolling the assets over? This might not sit well with the employees.

Thanks for all the help!!

Establishing the 401(k) plan is not required. If the SIMPLE Plan is terminated, the SIMPLE IRA assets would just remain in each participant’s SIMPLE IRA until the individual owner is ready to make withdrawals or transfer/rollover the SIMPLE assets to an eligible retirement plan. Further, since these participants are no longer employees of the Corporation, their assets cannot be rolled to a 401(k) established by the Corporation.


An individual that has assets in a SIMPLE IRA may either:

-Keep the assets in the SIMPLE IRA until RMD amounts must be taken
- transfer the SIMPLE assets to another SIMPLE IRA,
-After 2-years transfer the assets to a traditional IRA, convert the assets to a Roth IRA or rollover to a qualified plan in which the individual is a participant.

See http://benefitslink.com/boards/index.php?a...minate+a+simple for a discussion on terminating SIMPLE IRAs

Hope this helps- if not, please post follow-up questions