Plan sponsor has SIMPLE and is adopting 401K as of Setp. 1, 2007 - how does one treat the EE's SIMPLE contributions from Jan - Aug? Thanks.

It is my understanding that if the employer has sponsored a SIMPLE, they are not eligible to establish a 401(k) until the following year.

Kim is correct. You can't do that.

To be precise, you can't have a SIMPLE in a year when the employer has any other plan. So while it's generally not advisable to start a 401(k), it can be done but it invalidates the SIMPLE contributions. I believe SIMPLE deferrals must be recharacterized as "regular" IRA contributions, subject to IRA limitations. Presumably W-2s would reflect the deferrals as regular taxable wages. I guess employer contributions would be tacked on to wages too, although since payroll taxes weren't withheld I don't know how that is resolved. Messy at best.

it is not entirely clear if you can convert a SIMPLE 401k during the year. certainly can'tt be done if you have a plan that used IRS model language. The ERISA outline book even suggests it might be possible (see 11.435) but there is no clear guidance. given that fact, I'm not sure I would want to switch.

I have a client that tried to do this last year but the big mutual fund company refused to reclassify the contributions.

I just realized I was assuming this was a SIMPLE IRA and other posters might be assuming it is a SIMPLE 401(k), so some of the apparently conflicting answers might all be correct.

Everything I've read says "can not."

And, it's calendar year based, not plan year. So, if you're thinking of doing a 9/1 to 8/31 plan year, you can't because you've still got a Simple contribution made during the current calendar year.

I don't think it matters whether it's Simple IRA or Simple 401k.

Christopher