Simple IRA contribution for a terminated employee
For a Simple IRA Plan, that owes an prior employee a contribution for 2020 – they were terminated in 2020 – how does the employer make the contribution if the prior employee has closed their Simple IRA account and transferred or distributed the account assets?
Permalink Submitted by Alan - IRA critic on Mon, 2021-02-22 17:03
The employer can open a new SIMPLE IRA account or perhaps reopen the closed account to make the contribution.
Permalink Submitted by Jerome Pasichow on Mon, 2021-02-22 18:54
What if the employee is only receiving $300 and does not want to open/re-open an account. Can the Employer pay them “directly”? Or must the money (the match contribution) go into a Simple IRA account. There does not seem to be a guidance on the IRS site about this?
Permalink Submitted by Jerome Pasichow on Mon, 2021-02-22 20:05
What if the employee is only receiving $300 and does not want to open/re-open an account. Can the Employer pay them “directly”? Or must the money (the match contribution) go into a Simple IRA account. There does not seem to be a guidance on the IRS site about this?
Permalink Submitted by David Mertz on Mon, 2021-02-22 22:20
The employer has no choice but to open a SIMPLE IRA account on the former employee’s behalf and make the contribution. The tax code requires that the contribution be made to a SIMPLE IRA for the former employee.
Permalink Submitted by Jerome Pasichow on Mon, 2021-02-22 22:45
Thank you!
Permalink Submitted by Kevin Martin on Tue, 2022-03-08 23:32
I have a small business client in this same situation. The employee does not want to open or reopen a SIMPLE IRA to receive the employer’s contribution. The custodian used by other plan participants cannot open a SIMPLE IRA on behalf of the employee without the employee’s signature. Is there a financial institution that will open a SIMPLE IRA on behalf of an employee without the employee’s signature?
Permalink Submitted by Alan - IRA critic on Wed, 2022-03-09 01:05
Perhaps these institutions are not aware that they can and should open such accounts if they intend to offer SIMPLE IRAs. The following is copied from Notice 98-4.
“Unable to establish a SIMPLE IRA? A. G4: If an eligible employee who is entitled to a contribution under a SIMPLE IRA Plan is unwilling or unable to establish a SIMPLE IRA with any financial institution prior to the date on which the contribution is required to be made to the SIMPLE IRA of the employee under Q&A G5 or G6, an employer may execute the necessary documents to establish a SIMPLE IRA on the employee’s behalf with a financial institution selected by the employer.”
Permalink Submitted by Kevin Martin on Wed, 2022-03-09 02:18
Thank you so much for the reference! I’ll follow up with the financial institution regarding Notice 98-4.