The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in California is representative of a common inquiry involving a plan establishment deadline. The advisor asked:
I seem to recall that October 1 is an important deadline for establishing certain types of retirement plans. Can you refresh my memory on what those plans are?
Highlights of Recommendations
- Two plan types have an establishment deadline of between Jan. 1 and Oct. 1 of a year: A safe harbor 401(k) plan and a savings incentive match plan for employees (SIMPLE) IRA plan.
- Regarding establishing a safe harbor 401(k) plan for businesses on a 2014 calendar fiscal year, if the business has an existing profit sharing plan (i.e., one without salary deferrals or safe harbor provisions), or if the business is without any retirement plan, the safe harbor provisions can be added, but they must be in place for at least three months. Therefore, Oct. 1, 2014, is the deadline to amend an existing profit sharing plan to add safe harbor provisions or to establish a new safe harbor 401(k) plan for 2014.
- For businesses with an existing 401(k) plan in 2014, safe harbor provisions may only be added effective with the beginning of the next plan year.
- For a SIMPLE IRA plan, an eligible business can set up a SIMPLE IRA plan for 2014 effective on any date between Jan. 1, 2014 and Oct. 1, 2014, provided the business did not previously maintain another plan. New businesses have an exception. If a business comes into existence after Oct. 1 of the year, the business can establish the SIMPLE IRA plan as soon as administratively feasible after its creation.
Conclusion
For eligible businesses interested in establishing either a safe harbor 401(k) plan or a SIMPLE IRA plan for 2014, quick action is required as the set-up deadline of Oct. 1, 2014, is fast approaching.
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2014 Columbia Management Investment Advisers, LLC. Used with permission.
