IRS Issues Guidance on SIMPLE Plans and Plan Benefits, Contribution Limits

Washington, DC, December 24, 1997 - The Internal Revenue Service has released separate guidance on SIMPLE plans and on plan benefits and contribution limits. The Service has provided updated guidance in a question-and-answer format on SIMPLE plans in Notice 98-4. The Service has also issued Revenue Ruling 98-1, which provides guidance on the limitations on benefits and contributions under Section 415 of the Code, taking into account the provisions of the Small Business Job Protection Act of 1996 ("SBJPA"), including the technical correction made by Taxpayer Relief Act of 1997 ("TRA '97"). Rev. Rul. 98-1 generally concerns defined benefit plans and applicable contribution limits under Section 415.

Notice 98-4, which provides guidance regarding SIMPLE plans, reflects the technical corrections to SIMPLE plans made by the TRA '97 and the issuance of Form 5304-SIMPLE by the Service. It also provides a transition period for the use of Form 5305-SIMPLE (for Use with a Designated Financial Institution) for a SIMPLE IRA Plan that does not use a designated financial institution. Notice 98-4 modifies and supersedes the SIMPLE guidance provided in Notice 97-6, which was issued on December 23, 1996. Notice 98-4 also includes certain stylistic changes to Notice 97-6, including substitution of the term "SIMPLE IRA Plan" for the term "SIMPLE plan."

Rev. Rul. 98-1 provides questions and answers to 24 issues under the Section 415 limitations and reflects amendments made by the SBJPA and the TRA '97. This revenue ruling modifies and supersedes Revenue Ruling 95-29, which provided questions and answers on the limitations on benefits and contributions under Section 415 of the Code, as amended by the Uruguay Round Agreements.