Full Version: Simple IRA to 401(K)
I have an employer who wants to switch from a simple IRA to a 401(K). What are the necessary steps in accomplishing this switch. I understand that if the simple has started the calendar year you cannot have a qualified plan during that year. Would the employer be able to start the 401(K) as of 1/1/07?
The 401(k) would invalidate any previosly established SIMPLE IRA for the year. All contributions (now excess contributions) would be reflected in box 1 of Form W-2. The excess should be removed in accordance with traditional IRA rules. [See IRC 408(d)(7)(B), referring to 408(d)(4) and 408(d)(5)], However, the SIMPLE IRA excess does not appear to be subject to the 6 percent excess contribution penalty tax (even if returned after the due date).
Hope this helps.
Hope this helps.
QUOTE (Gary Lesser @ Mar 14 2006, 09:03 PM) 
The 401(k) would invalidate any previosly established SIMPLE IRA for the year. All contributions (now excess contributions) would be reflected in box 1 of Form W-2. The excess should be removed in accordance with traditional IRA rules. [See IRC 408(d)(7)(B), referring to 408(d)(4) and 408(d)(5)], However, the SIMPLE IRA excess does not appear to be subject to the 6 percent excess contribution penalty tax (even if returned after the due date).
Hope this helps.
Hope this helps.
Additional Question regarding Simple IRA exclusive plan rule...
Employer A sponsors a 401k plan and purchased 100% of the stock of corproation B in 2006. Corporation B sponsors a Simple IRA for it's 4-5 employees. For purposes of the exclusive plan rule, if $0 contributions have been made to the Corporation B's Simple IRA in 2006. Corporation A wishes to terminate the Simple IRA in 2006 and amend Corporation A's 401k plan to include employees of Corportion B as eligible participants in Corporation A's 401k plan during the 2006 plan year, correct? The affect to the Simple IRA in 2006 would be moot since there are $0 "excess contributions" to return, correct?
QUOTE (JDK @ Mar 9 2006, 11:44 AM)
I have an employer who wants to switch from a simple IRA to a 401(K). What are the necessary steps in accomplishing this switch. I understand that if the simple has started the calendar year you cannot have a qualified plan during that year. Would the employer be able to start the 401(K) as of 1/1/07?
Yes, it would be best to start the 401(k) plan on January 1, 2007 and discontinue the SIMPLE IRA as of December 31, 2006.
Additional Question regarding Simple IRA exclusive plan rule...
Employer A sponsors a 401k plan and purchased 100% of the stock of corproation B in 2006. Corporation B sponsors a Simple IRA for it's 4-5 employees. For purposes of the exclusive plan rule, if $0 contributions have been made to the Corporation B's Simple IRA in 2006. Corporation A wishes to terminate the Simple IRA in 2006 and amend Corporation A's 401k plan to include employees of Corportion B as eligible participants in Corporation A's 401k plan during the 2006 plan year, correct? The affect to the Simple IRA in 2006 would be moot since there are $0 "excess contributions" to return, correct?
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You are correct. In the event there were contributions to the SIMPLE, then there is a transition rule in place to allow those two plans to continue without violating the exclusive plan rule. But like you said, it's a moot point.
Employer A sponsors a 401k plan and purchased 100% of the stock of corproation B in 2006. Corporation B sponsors a Simple IRA for it's 4-5 employees. For purposes of the exclusive plan rule, if $0 contributions have been made to the Corporation B's Simple IRA in 2006. Corporation A wishes to terminate the Simple IRA in 2006 and amend Corporation A's 401k plan to include employees of Corportion B as eligible participants in Corporation A's 401k plan during the 2006 plan year, correct? The affect to the Simple IRA in 2006 would be moot since there are $0 "excess contributions" to return, correct?
[/quote]
You are correct. In the event there were contributions to the SIMPLE, then there is a transition rule in place to allow those two plans to continue without violating the exclusive plan rule. But like you said, it's a moot point.
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