Invalidated SIMPLE Plans (Posted April 22, 2002) Technical Tip 71: The following question and answer were from the IRS Q&A Session at the 2000 ASPPA Annual Conference: If a company has a SIMPLE IRA and adopts a qualified plan, what happens? Does the SIMPLE become invalidated since it can be the only plan of the company? Would the contributions made this year have to be returned? If so, when? By the due date of the employees’ tax return? Would the distributions be subject to the 25% early distribution penalty since the SIMPLE has only been in place one year? Response: The SIMPLE is invalidated. The contributions would have to be returned by the due date of the employees’ tax return (see 408(d)(4)). The 25% penalty would not apply. View all Tips © 2010 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.