Advanced Underwriting Consultants

Question of the Day – April 28

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: One of my business owner clients sponsors a SIMPLE plan, and the business makes both contributory and non-elective contributions.  The last time the business contributed to the SIMPLE plan was in 2009.  The client wants to terminate the plan.   How is that done, and what are the client’s obligations?

Answer: Employer contributions to a SIMPLE plan—whether matching or non-elective—must be made for every year the plan is in effect.  For calendar year 2010, the employer contributions may be made as late as the due date for the 2010 return, including extensions.

Here’s information from the IRS’s website about how an employer may terminate a SIMPLE plan:

When can an employer terminate a SIMPLE IRA plan?

Other than initial establishment, SIMPLE IRA plans are maintained, or not maintained, on a whole-calendar-year basis. Once started for a year, a SIMPLE IRA plan must continue for the entire calendar year, funding all contributions promised in the employee notice. An employer may terminate a SIMPLE IRA plan prospectively, beginning with the next calendar year, after the employer has informed employees that there will be no SIMPLE IRA plan for the upcoming year.

Example: If in 2007 an employer decides to terminate its SIMPLE IRA plan as soon as possible, the employer must inform employees within a reasonable period of time before the 60-day election period ending on December 31, 2007, that there will be no SIMPLE IRA plan for 2008. For 2008 the employer may establish and maintain another kind of qualified plan for its employees and, if this other qualified plan is not operative in 2009, re-establish a SIMPLE IRA plan for 2009.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.