(b)lines Ask the Experts – Can a Church Terminate a SIMPLE IRA and Establish a 403(b) in the Same Year?

“A ‘steeple’ church, as defined at IRC Section 3121(w)(3)(A), sponsors a SIMPLE IRA Plan. They wish to terminate the SIMPLE and establish a 403(b) plan within the same plan year. Is this permissible?”

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

A church cannot terminate a SIMPLE IRA and establish a 403(b) plan within the same calendar year, due to the fact that a SIMPLE IRA cannot be terminated mid-year. This is due to the SIMPLE IRA’s contribution and notice requirements which mandate that all contributions in the required annual employee notice be funded as promised.

In fact, if a church decided to terminate a SIMPLE IRA after the commencement of the election period (November 2nd through December 31st) for the following calendar year, they would need to wait until the year following to terminate the SIMPLE IRA. For example, if a church made the decision to terminate a SIMPLE IRA in December of 2019, the earliest effective date for the termination would be January 1st, 2021.

It should also be noted that this rule not only applies to churches, but to other types of entities that are eligible to sponsor a SIMPLE IRA and a 403(b) as well. For more details, please refer to the SIMPLE IRA plan termination section of the IRS Website.

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.