If a SIMPLE IRA plan fails to meet the SIMPLE IRA plan requirements, are the tax benefits for the employer and employees lost?
Generally, tax benefits are lost if the SIMPLE IRA plan fails to satisfy the Internal Revenue Code requirements. However, the employer may be able to retain the tax benefits if it uses one of the IRS correction programs to correct a failure. In general, when correcting a failure under the program, the correction should put employees in the position they would have been had the failure not occurred. Note: The IRS has a system of correction programs for sponsors of retirement plans that are intended to satisfy Internal Revenue Code requirements but have not met the requirements for a period of time. The IRS is accepting submissions related to the correction of SIMPLE IRA plan failures. Correcting SIMPLE IRA plan failures permits an employer to continue to provide its employees with retirement benefits on a tax-favored basis. See our Correcting Plan Errors web page.
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