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SIMPLE IRA Plan Fix-It Guide – Your business sponsors another qualified plan

Mistake

Find the Mistake

Fix the Mistake

Avoid the Mistake


3) Your business sponsors another qualified retirement plan.

Determine if any employee received an allocation of contributions or accrued a benefit from your other qualified plan.

Stop employer and employee contributions to the SIMPLE IRAs.

Don't maintain another qualified retirement plan while sponsoring a SIMPLE IRA plan.

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.

However, you can have a SIMPLE IRA plan even though you maintain another retirement plan if:

  • The other plan is only for employees covered under a collective bargaining agreement, and the SIMPLE IRA plan excludes these employees; or
  • Your business was part of an acquisition, disposition or similar transaction during the current calendar year or the two prior calendar years, and only your separate employees participate in the SIMPLE IRA plan.

How to find the mistake:

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.

Example: ABC Company has a profit-sharing plan to which they make annual contributions. ABC Company may not have a SIMPLE IRA plan because they have another plan in which participants receive contributions.

Example: DEF Company is terminating its calendar-year profit-sharing plan. DEF made a profit-sharing contribution for 2013 but didn’t deposit it until 2014. Therefore, even though DEF deposited the profit-sharing contribution in 2014, they allocated it in 2013. DEF Company may have a SIMPLE IRA plan for 2014 because no participant received an allocation in 2014.

Example: GHI Company has a fiscal year (July – June) profit-sharing plan. If GHI allocates a profit-sharing contribution for plan year July 1, 2013 – June 30, 2014, it can’t have a SIMPLE IRA plan for either the 2013 or 2014 calendar year.

How to fix the mistake:

Corrective action:
If you maintain other retirement plans, cease making new contributions to the SIMPLE IRA plan. You may be able to file a VCP submission requesting that contributions made for previous years in which you maintained more than one plan remain in the employees’ IRAs.

Correction programs available:

Self-Correction Program:
This mistake cannot be corrected under SCP.

Voluntary Correction Program:
If the plan isn’t under audit, you make a VCP submission to the IRS using the model documents in Appendix C, including Schedule 4. You must include Forms 8950 and 8951. The fee for the VCP submission is $250.

Audit Closing Agreement Program:
If this mistake is discovered on audit, it may be corrected under Audit CAP. Correction of the plan under Audit CAP should be very similar to correction under VCP. The sanction under Audit CAP is a percentage of the maximum payment amount.

How to avoid the mistake:

You should ensure that you and any members of a controlled group or affiliated service group of which you are a member don't maintain another qualified retirement plan. If you have another qualified plan and want to establish a SIMPLE IRA plan, then you need to take steps to terminate the qualified plan before the calendar year in which you contribute to the SIMPLE IRA plan.

SIMPLE IRA Plan Fix-It Guide
SIMPLE IRA Plan Overview
EPCRS Overview
SIMPLE IRA Plan Fix-It Guide (pdf)
SIMPLE IRA Plan Checklist (pdf)
IRA-Based Plans Additional Resources

IRS.gov / Retirement Plans / Correcting Plan Errors / Fix-It Guides / SIMPLE IRA Plan Fix-It Guide / Potential Mistake

Page Last Reviewed or Updated: 14-Aug-2014