car dealer ship with a 401(k) wants to switch to simple IRA
Hello,
I have a client that has a car dealership that has a 401(k) plan offered to their employees. last year there were thinking about openning a simple IRA in place of the 401(k) but they never got around to doing that. this year they have come forward and want to start a simple IRA. what adjustments should they make in order to start a simple IRA? what options do they have with their 401(k) if they are not wanting to continue it?
Permalink Submitted by Denise Appleby on Fri, 2011-07-22 13:29
You want to be very careful here, as-generally- an employer cannot maintain a SIMPLE IRA in the same year that it maintains another employer sponsored retirement plan. If the 401(k) plan was not maintained for this year, the SIMPLE IRA can be established by October 1. A summary description and deferral notice must be provided to employees.
Permalink Submitted by Shahpar Naghshineh on Fri, 2011-07-22 20:14
when you say summary description and deferral notice , is that in relation to the simple IRA employer wants to open?
Permalink Submitted by Denise Appleby on Fri, 2011-07-22 20:30
Yes- that is correct. IRS Notice 98-4 includes information on this and other SIMPLE IRA rules- available here http://www.unclefed.com/Tax-Bulls/1998/not%2098-04.pdf
Providing the notices timely is very important- and failure to meet this requirement can result in the employer owing the IRS excise taxes
Good luck~
Permalink Submitted by Walter Apelt on Thu, 2011-07-28 02:44
I suspect dealer wants to do SIMPLE plan for calendar year 2012 and close down his 401(k) and distribute all assets during 2011. Thus he would not have two plans in either 2011 or 2012. In October 2011 he would give a letter to his employees on the SIMPLE that is starting Jan. 1, 2012. Is my thinking correct?