Historically, employers faced restrictions when considering shifting from a SIMPLE IRA to a 401(k) plan mid-year. But thanks to the SECURE Act 2.0, 2024 brings good news – employers can now terminate a SIMPLE IRA and replace it with a safe harbor 401(k) plan at any point in the calendar year.

Key Changes and Benefits:

• Higher Contribution Limits: 401(k) plans offer greater contribution flexibility.
• Diverse Investment Options: Expand investment choices for both employers and employees.
• Loan Provisions: Access additional financial options for participants.
• Improved Features: Enjoy a wider range of plan features tailored to your needs.

 Termination Procedure:

• Formally document the termination date of the SIMPLE IRA plan.
• Notify employees at least 30 days prior to the termination.
• Utilize available termination letter templates from American Trust for compliance.

 Contributions and Tax Implications:

• Ensure salary reduction, matching, and nonelective contributions are accounted for up to the termination date.
• Early distribution tax exemptions apply when assets are rolled over into a 401(k) or 403(b) plan.
• Carefully calculate aggregated deferral limits during the transition year.

 Staying Informed:

As businesses contemplate this transition, staying informed about regulations and seeking guidance from financial and legal professionals is crucial. With careful planning, this shift can unlock enhanced retirement savings opportunities for both employers and employees.

Ready to optimize your retirement plan? Explore the benefits of transitioning from a SIMPLE IRA to a safe harbor 401(k) today!