posted 12-14-98 03:51 PM ET (US)            
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Query: Employer has an existing 401k plan. Approx 12 participants. He wants to terminaet the plan because he is sick of the high costs and wants to start a simple ira. in 1999. I see a problem due to reg 1.401(k)-1(d)(6) rules applicable to distributions upon plan termination. If the Employer terminates the plan (which is considered a distribution event) and makes a distribution he will be prohibited from starting a simple ira for the 12 months following the distribution. My research has led me to the possibility of coverting the 401k to a simple 401k, creating a SEP, or waiting a year to start the simple IRA. Bottomline my clients wants to save money. Do you see any way around the 12 month prohibition and immediately starting a simple ira? One more question. If the Employer does start a simple IRA, one year later, can you rollover into a simple IRA from a SEP or simple 401k? Thanks for any help you can provide.

{message deleted by moderator - gsl}

[This message has been edited by Gary Steven Lesser (edited 12-18-98).]

{duplicate message deleted - gsl}

Please avoid posting solicitation (sales)messages that do not answer the posted question. Thanks.

[This message has been edited by Gary Steven Lesser (edited 12-17-98).]

{duplicate message deleted - gsl}

[This message has been edited by Gary Steven Lesser (edited 12-17-98).]

{duplicate message deleted - gsl}

[This message has been edited by Gary Steven Lesser (edited 12-17-98).]

You are not alone in your question. See mine on the 401(k) message board. Maybe someone can provide us with some direction.

A SIMPLE IRA may be started in the year following the termination of an active 401(k)plan. For the purpose of the "sucessor plan rules applicable upon termination of a 401(k) plan, a successor plan is any defined contribution plan AS DEFINED IN CODE SECTION 414(i), but EXCLUDES an ESOP and a SEP. See treasury Regulations Section 1.401(k)-1(d)(3). [See, too, SIMPLE, SEP, and SARSEP Answer Book, 4th edition, Q&A 15:4] The referance in the regulations is nonstatutory but makes sense from a policy standpoint; that is, the purpose of IRC 410(k)(10)(A)(i) is to prevent participants from gaining premature access to their funds (which would not occur in a SEP).

{duplicate message deleted} - gsl

[This message has been edited by Gary Steven Lesser (edited 12-18-98).]

A SEP is not a "successor" defined contribution plan. Therefore, the employer may start a SEP after terminating a 401(k) plan. See Treasury Regulation Section 1.401(k)-1(d)(3).