SIMPLE IRA Plan Fix-It Guide – You haven't updated your SIMPLE IRA plan document for current law changes



Find the Mistake

Fix the Mistake

Avoid the Mistake

1) You haven't updated your SIMPLE IRA plan document for current law changes. Determine if your plan document is the latest IRS-approved SIMPLE IRA plan document from your financial institution or a current model plan. Adopt the latest version of your financial institution’s IRS-approved SIMPLE IRA plan document or a current IRS Form 5304-SIMPLEPDF or 5305-SIMPLEPDF. Make sure you adopt the most current SIMPLE IRA plan document.

The laws governing retirement plans change frequently. Some new laws require changes in a plan's terms and operations; others may offer plan sponsors a new option or increase benefits allowable under a plan. Plans must be operated according to each new required provision as of that provision's statutory effective date (established by Congress), and any necessary changes to the plan's language must be made by a separate date set by the IRS. If a plan sponsor decides to take advantage of a new optional rule, the sponsor must adopt an appropriate amendment to the plan language before the end of the year in which the new rule is put in place. At least once a year you should confirm that your plan language and operations are up-to-date. In addition, Revenue Procedure 2002-10PDF required SIMPLE IRA plans to be updated for law changes after January 1, 2002, and that IRS model adopters must have had an updated plan in place by December 31, 2002.

How to find the mistake:

If you're using an IRS model Form 5304-SIMPLEPDF or 5305-SIMPLEPDF, review the top left-hand corner of the document for the revision date (for example, “Rev. March 2012”), and compare it with the revision date for the current model plans on the IRS website. If the revision date for your plan is earlier, then it’s likely your plan hasn’t been updated to reflect the most recent law changes. However, you should follow the instructions for the latest document. The instructions for the current model forms (with a revision date of March 2012) provide that if you used the March 2002, August 2005 or September 2008 version of the form to establish a model SIMPLE IRA plan, you aren’t required to use the March 2012 version of the form.

If you’re using a financial institution’s SIMPLE IRA prototype document, check whether the financial institution has received an IRS opinion letter stating that the SIMPLE IRA prototype document satisfies current law.

How to fix the mistake:

Corrective action:

You should adopt a current IRS SIMPLE IRA model plan or IRS-approved SIMPLE IRA prototype plan.

For years in which the plan wasn't governed by a valid plan document, the SIMPLE IRA could lose the tax benefits associated with contributions made to the SIMPLE IRA and the earnings accumulated in the SIMPLE IRA, unless you correct this error using the Voluntary Correction Program.

Correction programs available:

Self-Correction Program:

This mistake cannot be corrected under SCP.

Voluntary Correction Program (VCP):

If you didn’t timely adopt an updated SIMPLE plan document, and the plan is not under audit make a VCP submission to the IRS under Revenue Procedure 2021-30PDF via the website following the procedures in Section 11. Plan sponsors are encouraged to make their VCP submission using model document Form 14568, Model VCP Compliance StatementPDF, including Form 14568-D, Schedule 4 SIMPLE PlansPDF to identify the failure and describe how it’s being fixed. User fees for VCP submissions are generally based upon the current value of all IRAs that are associated with the SIMPLE plan.

Audit Closing Agreement Program (Audit CAP):

If discovered on audit, you can correct the failure to timely adopt an updated plan document by the required deadline under Audit CAP. Correction of the plan under Audit CAP should be very similar to correction under VCP. The plan sponsor and the IRS enter into a closing agreement outlining the corrective action and negotiate a sanction that is not excessive, considers facts and circumstances, and bears a reasonable relationship to the nature, extent and severity of the failures, based upon all relevant factors described in section 14 of Revenue Procedure 2021-30.

How to avoid the mistake:

If you're using IRS Form 5304-SIMPLEPDF or 5305-SIMPLEPDF, visit the IRS website before the end of each calendar year to see if the IRS has updated the model plans. If there’s a newer version of the form, read the instructions to determine if you need to adopt the newer form.

If you’re using a financial institution’s SIMPLE IRA prototype, check with that financial institution to ensure that they have the proper procedures in place to send you any required updates you need to sign timely.

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SIMPLE IRA Plan Fix-It Guide
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EPCRS Overview
SIMPLE IRA Plan ChecklistPDF
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