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 all 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 2018 but didn’t deposit it until 2019. Therefore, even though DEF deposited the profit-sharing contribution in 2019, they allocated it in 2018. DEF Company may have a SIMPLE IRA plan for 2019 because no participant in the profit-sharing plan received an allocation in 2019.
Example: GHI Company has a fiscal year (July – June) profit-sharing plan. If GHI allocates a profit-sharing contribution for plan year July 1, 2019 – June 30, 2020, it can’t have a SIMPLE IRA plan for either the 2019 or 2020 calendar year.
How to fix the mistake:
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:
This mistake cannot be corrected under SCP.
Voluntary Correction Program (VCP):
If the plan isn’t under audit you may make a VCP submission to the IRS under Revenue Procedure 2019-19 via the Pay.gov website following the procedures in Section 11. Plan sponsors are encouraged to make their VCP submission using model document Form 14568, Model VCP Compliance Statement (PDF), including Form 14568-D, Schedule 4 SIMPLE Plans (PDF) 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 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 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 Rev. Proc. 2019-19.
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.