Terminating a 401k and establishing a SIMPLE Plan
We have a client who is looking to terminate their 401k plan (last contributions to the 401k plan was Jan 2022) and establish a SIMPLE Plan.
Since there were 401k contributions in Jan 2022 and if the plan is being terminated, I’m assuming there would be no issue establishing the SIMPLE plan immediately?
Can the participants rollover their 401k into their new SIMPLE IRA? I saw where it says “yes” but after 2 yrs. Can you clarify this?
Thank you!
Permalink Submitted by William Tuttle on Tue, 2022-01-25 23:08
The client can not adopt a 401k until 1/1/2023. From the IRS SIMPLE IRA Plan FAQs:
Can I contribute to my SIMPLE IRA plan if I maintain another retirement plan?
Generally, you can’t contribute to a SIMPLE IRA plan for a calendar year if you maintain another retirement plan and any of your employees receives an allocation or accrues a benefit under the other plan during that calendar year (the “one-plan requirement”).
However, you can have a SIMPLE IRA plan even though you maintain another retirement plan if:
The other plan is only for employees covered under a collective bargaining agreement, and the SIMPLE IRA plan excludes these employees; or
Your business was part of an acquisition, disposition or similar transaction during the current calendar year or the 2 prior calendar years, and only your separate employees participate in the SIMPLE IRA plan.
A SIMPLE IRA participant can not distribute/rollover for two (2) years after the first contribution. Therefore. rollovers also can not be accepted until those two (2) years have elapsed.