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Employee Plans News - March 20, 2012 - Can I amend or terminate my SIMPLE IRA plan in the middle of the year?

No. You can’t amend or terminate your SIMPLE IRA plan mid-year. A SIMPLE IRA plan must be operated for the entire calendar year (or the remainder of the calendar year if started after January 1). Additionally, once you have given employees the annual notice describing the plan features for the coming year, you can’t change any of those features during the year.

Example 1: On January 30, 2012, Acme Company decided it would like to change its SIMPLE IRA plan matching contributions from 3% to 1%. Acme’s SIMPLE IRA plan notice to employees (given on November 2, 2011) stated that the match would be 3% for 2012. Acme must contribute 3% for 2012. The earliest effective date for Acme’s change in matching contributions would be January 1, 2013. Acme must notify its employees during 2012 that it will reduce the matching contribution to 1% in 2013.

Example 2: The Bear Company’s SIMPLE IRA plan contributions are deposited at a designated financial institution, as described in its Form 5305-SIMPLE document. On February 5, 2012, Bear Company decided it would like to change its SIMPLE IRA plan document to a Form 5304-SIMPLE so that plan contributions would no longer be sent to the designated financial institution but would be sent to SIMPLE IRAs at other financial institutions selected by plan participants. This change is an amendment to the Bear Company’s SIMPLE IRA plan and can’t be made mid-year. The earliest that this amendment can be effective is January 1, 2013.

To amend the plan, Bear Company should:

  • complete and sign Form 5304-SIMPLE;
  • indicate in Section VII of the form that the effective date will be January 1, 2013; and
  • notify the employees by November 2, 2012, that they will need to select a financial institution to serve as the trustee, custodian, or issuer of their SIMPLE IRA.

Terminating a SIMPLE IRA Plan

If your SIMPLE IRA plan no longer fits your business needs and you’d like to terminate it, notify the SIMPLE IRA plan financial institution that you won’t be contributing the next calendar year. You must also notify your employees by November 2 that you will discontinue the SIMPLE IRA plan effective the first day of the next calendar year. You don’t need to notify the IRS that you have terminated the SIMPLE IRA plan.

Example 3: Acme Company decided on November 18, 2011, to terminate its SIMPLE IRA plan as soon as possible. The earliest effective date for the termination would be January 1, 2013. Acme must notify its employees during 2012 that it won’t sponsor a SIMPLE IRA plan for 2013.

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Page Last Reviewed or Updated: 11-Feb-2014