How to Upgrade Your SIMPLE IRA to a 401(k) Plan

If you are a business owner currently sponsoring a SIMPLE IRA, then you are likely familiar with some of the limitations of a SIMPLE IRA. For example, required annual contributions, immediate vesting schedule, no Roth or loan option, not to mention the contribution limits are significantly lower than many other types of retirement plans.

Good news, there is a simpler way to save for retirement! If you’ve ever wondered about upgrading your SIMPLE IRA to a 401(k) plan, you’ve come to the right place.

A SIMPLE IRA is a common plan for employers to start out with, however, most businesses quickly outgrow their SIMPLE IRA and find it’s time to upgrade to a 401(k) plan.  

Changing a SIMPLE IRA to a 401(k) plan is easy, but the deadline to do so for 2023 is approaching fast. See below for a Step by Step Guide and timeline:

Step By Step Guide and Timeline

Step 1 (by mid-October): Hire a trusted adviser to help you terminate the SIMPLE IRA and establish the 401(k) plan that is best for you

Step 2 (by November 1st): Notify your employees that you’ll discontinue the SIMPLE IRA plan effective January 1st (Fisher helps with this)

Step 3 (mid-November): Notify your SIMPLE IRA provider and payroll provider that you will be terminating the SIMPLE IRA as of Dec 31, 2023 (Fisher helps with this).

Fisher is a top-rated financial adviser who helps business owners convert their SIMPLE IRA to a hassle-free affordable 401(k) plan. Find out more.

Seven Frequently Asked Questions About a SIMPLE IRA Conversion

1. What is the deadline to change my 2023 SIMPLE IRA to a 2024 401(k)?

The SIMPLE IRA must be terminated by Dec 31, 2024, which means employees must be notified by November 1st 2023.

2. Why is there a deadline to change my SIMPLE IRA to a 401(k)?

Per IRS guidelines:

1. An employer cannot maintain both a SIMPLE IRA and a 401(k) at the same time.
2. An employer cannot terminate a SIMPLE IRA in the middle of the calendar year.

This means if an employer wants to replace their current SIMPLE IRA with a 401(k), they must terminate the SIMPLE IRA in 2023 and start a new 401(k) plan to begin in January 2024.

3. Where can I find more information about terminating my SIMPLE IRA?

For more info: https://www.irs.gov/retirement-plans/plan-sponsor/simple-ira-plan#terminate

4. How do assets transition from a SIMPLE IRA to a 401(k)?

The individual accounts in the SIMPLE IRA will become IRAs once the plan is terminated. Employees with SIMPLE IRA accounts open for more than 2 years can elect to roll their accounts into the new 401(k) as soon as January 1st. (Fisher helps employees with this).

5. What about accounts that haven’t been open for 2-years?

SIMPLE IRA accounts that are less than 2 years old can’t be rolled into the 401(k) plan until the account has been “seasoned” for 2 years. These accounts will remain IRAs until the 2 year mark. (Fisher helps with this by tracking the accounts, and proactively reaching out to assist participants once they achieve their 2 year mark).

6. Do participants have to roll their funds into the 401(k)?

Participant can elect to leave their funds in their IRA account, it’s totally up to them!

7. How do I get started?

Set up a consultation.