Open and contribute to SIMPLE IRA after 401(k) plan termination during the same year
Company has terminated the 401(k) plan as of April 30, 2022. Last employee and employer contributions were in April 2022. Is the company now allowed to establish a Simple IRA immediately? 401(k) participant distributions payouts will start in May 2022 as participants return their distribution request forms.
If the company establishes a SIMPLE IRA in June 2022, will the company and participants be allowed to start making contributions in June 2022?
I’ve seen conflicting viewpoints online. The language contained in the following IRS webpage seems to suggest the company must wait till at least January 2023. But not sure if this is just refers to maintaining both plans at the same time.
“You can’t contribute to a SIMPLE IRA plan for any calendar year in which an employee either:
receives an allocation of contributions in a defined contribution plan, such as a 401(k), profit-sharing, money purchase, 403(b) or SARSEP plan; or
accrues a benefit in a defined benefit plan for any plan year beginning or ending in that calendar year.”
“Determine whether any employee (including any employee of the members of a controlled group or affiliated service group, if applicable) received an allocation of contributions or accrued a benefit in another qualified plan you sponsored for any part of the calendar year.”
It is clear that the 12 month waiting period doesn’t apply as the SIMPLE IRA isn’t considered a defined contribution plan under the successor plan rule for a 401(k).
Thanks for your input.
Permalink Submitted by Alan - IRA critic on Thu, 2022-05-26 19:27
The company must wait until Jan, 2023 because contributions to the 401k were made in 2022, basically as stated in the quote you posted. The annual SIMPLE IRA Notice must be provided to employees by 11/2/2022. Of course, a SIMPLE IRA is inferior for the employees, and usually more expensive particularly if a 5305 (DFI) plan is adopted, although it probably will be less expensive for the employer.