Understanding the SIMPLE IRA-to-Safe Harbor 401(k) Mid-Year Switch Post SECURE 2.0

Under the SECURE Act 2.0, employers are no longer required to wait until year-end to terminate SIMPLE IRA plans in favor of safe harbor 401(k) retirement savings plans. To make the switch, employers must notify employees at least 30 days prior to the termination date and explain that no employer contributions will be made after the termination date. The termination must be based on a formal written document (such as resolutions) adopted by the employer. The employer must formally adopt a safe harbor 401(k)--remembering that only safe harbor 401(k)s allow the employer to execute the mid-year termination. Because employees, in this situation, will not have the benefit of contributing to either account for the entire year, the IRS uses a weighted average formula (contained in Notice 2024-02) that depends on the number of days that each plan was in effect during the relevant transition year, reduced by the SIMPLE account salary deferrals that had already been made for the transition year. For more information on the rules governing SIMPLE IRAs, visit Tax Facts Online. Read More: Link to Q3710. Note: Q is updated.