Establish a SIMPLE IRA for a second time?
Client had a SIMPLE IRA for a few years, then had > 100 employees so stopped it and set up a 401(k) plan for a few years.
The business now has only 5 employees and they are terminating their 401(k) plan.
Are they able to set up a SIMPLE IRA a second time? I thought I read somewhere that that can only be done under limited circumstances…
If so, are there any limitations (besides not having the 401(k) and SIMPLE IRA running the same year) in terms of setup, etc.?
Thank you very much.
Permalink Submitted by Alan - IRA critic on Thu, 2019-10-03 17:23
Yes, they can establish a SIMPLE IRA again, but only effective on Jan 1st. No unique requirements, but the employee 2 year waiting period may or may not start with contributions to the prior SIMPLE IRA established by the same employer, and employer should make clear how the waiting period is being administered.
Permalink Submitted by William Tuttle on Thu, 2019-10-03 17:56
However, the SIMPLE IRA custodian may but is not required to report distributions based on the earlier date. I suggest you make it a condition of giving the SIMPLE IRA custodian the client’s business that they accept evidence of any employee’s first date of contribution from the original SIMPLE IRA plan. That is assuming the original custodian, the employer or the employee have evidence of that date. Even a SIMPLE IRA 5498 showing contributions prior to 2018 would be enough evidence to remove the two-year restriction on 1/1/2020.