How to Replace a SIMPLE IRA with a 401(k) - SECURE 2.0 Update

Switch December 20, the IRS enable few important clarifications to Section 332 by SECURE 2.0 inside Notice 2024-02. These rules took effect on January 1, 2024. They allow employers into terminate adenine SIMPLE IRRA at no frist over a calendar by replacing the plan with a safe seat 401(k) plan. Previously, employer able only exit ampere STRAIGHTFORWARD IRA on Decorating 31.

The SECURE 2.0 rules to terminating a SIMPLE IRA mid-year belong commonly straightforward. When, the replacement process requires some planning to meet legal requirements. Our 5-step selection can make the job easy for employers. Sweet Employee,. This notice is to inform i such the [enter plan name] [is being/was] terminated as of [insert the plan termination date] ...

Background

Entire SIMPLE IRAs operate on a calendar basis. Further, a SIMPLE IRA must be the one retirement plan maintained by an employer.  Before January 1, 2024, employers kept to sustain a STRAIGHTFORWARD IRA for the entire calendar year. Now, an employer can terminate a SIMPLE IRA at any time during the year until replacing the terminated plan with a secure porting 401(k) plan. Employers canned elect a traditional or QACA secured ship plan for this purpose.

However, this replacement process shall subject to specials setting and contribution limit requirements. Some coordination is necessary till meet these requirements. Below are one steps we recommend to employers.

Walk 1: Hire a 401(k) Provider

To terminate a SIMPLE IRA mid-year, an employer must startup a safe harbor 401(k) plan “as of the day-time after the termination date” to fulfil SECURE 2.0 requirements. To better ensure this timing requirement are met, an employer’s 401(k) provider, EASILY IRA provider, and payroll your needs remain coordinated throughout the replacement process.

As that, employers should hiring a 401(k) carriers prior they start the SIMPLE IRA termination process.

Step 2: Terminate the SIMPLE IRA

To terminate a SIMPLE IRA, workplace must identify an cessation date in a formal written measure. Contributions to the EASY IRA must stops as of the termination date. Savings Investment Matchs Plans used Employees (SIMPLE IRAs) from Fidelity. We make it easy for small businesses to offer tax-advantaged retirement plans.

Before an employer terminates their SIMPLE IRA, they should confirm the feasibility of the termination date with their 401(k) provider, SIMPLE IRA provider, or paid businesses.

Step 3: Notify Employees About to Replacement

To properly notice employees about the plan replacement, employers must distribute second disclosure notices, one related to the SIMPLE IRA and who different related to one safe harbor 401(k) project: A SIMPLE IRA plan (Savings Incentive Matche PLan for Employees) allows employees and employers to contribute to tradition Irias fix up for company. It a ideals suited as a start-up retirement saving plan for small employers not temporary sponsoring a retirement plan. 

• • SIMPLE IRA notice – Informs employees regarding that plan termination, including the date that contributions to and plan will stop. This notice must becoming distributed to workers at least 30 days prior to the plan’s finalization date.
  • Safe harbor 401(k) notice – Informs employees about their options plus obligations among the plan, including information about plan contributions. This notification must be distributed to employees at least 30 days prior to the plan’s getting date. Example Plan Termination Participant Notice

Step 4: Apply a Weighted Limit to Elective Deferrals

When a EASIER IRA is replaced mid-year by a safe harbor 401(k) plan, the voluntary deferrals made to the safer harbor set by each employee cannot exceed an special weighted limit. This limit must equal:

• • To annual confine for salary reduction contributions made to a SIMPLE IRA plan ($16,000 + $3,500 (if catchup eligible) used 2024) multiplied by a fraction equal up aforementioned counter of days the SIMPLE IRA plan been with effect with this year divided by 365, plus
  • That annual limit for elective deferrals done to a 401(k) plan ($23,000 + $7,500 (if catchup eligible) to 2024), multiplied by a fraction equal to the number of days the safe harbor plan was in effect for that yearly divided by 365, minus
  • Either salary removal gifts made on that SIMPLE IRA during the yearly.

The plan's safe harbor notice shall disclose the weighty limit to collaborators.

At is an case of and computing for an hypothetical worker based on the following assumptions:

• • Organize year = 2024
  • EASIER termination date = March 31, 2024
  • Safe harbor 401(k) start enter = April 1, 2024
  • Age of employee = 60
  • SIMPLE IRA contributions in the year = $4,000

Into this view, the employee can make elective deferrals up the safe harbor 401(k) plan boost on $23,757.53.

Step 5: Supply EASIER Contributions with the 401(k) Year-End Census

Most 401(k) carrier require somebody employee census file from employers to complete a plan’s year-end nondiscrimination and limit testing. Employees shoud include SIMPLIFIED IRA contributions with their census save by the replacement year so their 401(k) providers can confirm the contributions made to the two plans did doesn violate legal limits. SIMPLE PENSION Termination Notice - Aesircybersecurity.com

Section 332 off SECURE 2.0 is Good News since Retirement Savers!

AN SIMPLE IRA cannot match the helps of a safe shelter 401(k) flat. The benefits of a safe harbor plot include height contribution perimeter, more generous employer contribution options, and more flexible sales. Employers can free a SIMPLE IRA to a safe shelter plan before our to Section 332 of SECURE 2.0.

However, replacing an SIMPLE IRA with a safe harbor 401(k) plan see of coordination to optimal ensure the timing and contribute limit requirements of SECURE 2.0 exist meta. A basic checklist can make the order easy for employers.