Discussion:Cancelling a 401K & starting a Simple in the same year

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Discussion Forum Index --> Tax Questions --> Cancelling a 401K & starting a Simple in the same year

Kpangelinan (talk|edits) said:

2 January 2013
Can one cancel a 401K (with no contributions) within the same calendar year and start/fund a Simple IRA (before the deadlines in October)?

RoyDaleOne (talk|edits) said:

2 January 2013
One can do that.

I don't know about penalties if you do that.

Marcilio (talk|edits) said:

2 January 2013
Termination of a plan generally requires distribution of all plan assets by plan year-end. If that didn't happen, you will may just have an inactive plan (depending on plan definitions and minimum funding requirements). It's ok to have a second plan in addition to the 401k.

Doug M (talk|edits) said:

2 January 2013
I would formally terminate the 401k plan before any plan thresholds have been met for the plan year (i.e. 1,000 hours of service, age etc)

The October deadlines you refer to generally apply to plan particulars for the next plan year. For example, your notification to employees as to the 1%/2%/3% plan contribution rate is done by Oct 2012 for the 2013 contribution rate.

Marty1970 (talk|edits) said:

2 January 2013
Responding to OP, yes, you can do that. See Section B of Notice 98-4.

Kpangelinan (talk|edits) said:

4 January 2013
THANK YOU all for the responses.....has been very helpful indeed.

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