Employer changes from a Simple IRA plan to a 401k. May employees keep their Simple IRA accounts?
A small employer is changing next year to a 401k plan and closing its Simple IRA plan. The employees have all been in the Simple IRA plan for at least 5 years. May they keep their Simple IRAs as-is even though the plan sponsor closes the plan? Or do they all have to roll their Simple IRA accounts to IRAs?
TIA for your help.
Delia Fernandez, MBA, CFP
Permalink Submitted by Alan - IRA critic on Wed, 2021-10-27 17:48
The employees should have the option to either retain their SIMPLE IRAs or transfer the balance to TIRAs. In addition, the 401k plan could optionally allow the employees to directly roll the SIMPLE IRAs into the 401k as rollover contributions.
Permalink Submitted by Delia Fernandez on Wed, 2021-10-27 18:13
Thanks so much for your response. Yes, the employees have been given the option to roll the balance of their Simple IRA accounts into the new 401k, but many have decided they want to remain with their current Simple IRA and the investments in their account. So the question is whether they are required to roll those accounts into TIRAs, or if the accounts may remain Simple IRAs if they no longer have a plan sponsor.
Permalink Submitted by Alan - IRA critic on Wed, 2021-10-27 19:11
Yes, they can remain SIMPLE IRAs and the 2021 employer match or non elective contribution may not be made until well into 2022. Other than that, the SIMPLE IRAs just become dormant. However, if this is a 5305 SIMPLE (DFI trustee), there usually are high fees and the employees need to check with the DFI to determine what changes may occur. Finally, the employer should already have mailed the notice of SIMPLE IRA termination to all employees and notified the SIMPLE IRA trustee as well. If the employees are not notified by 11/2, the employer will be stuck with the SIMPLE IRA for an extra year.