Safe 2.0 Clears Path for a SIMPLE IRA-to-Protected Harbor 401(okay) Swap


Throughout the yr of transition, the entire quantity contributed as wage discount contributions beneath the terminated SIMPLE IRA plan and as elective contributions beneath the secure harbor 401(okay) plan can not exceed the weighted common of the wage discount contribution and elective contribution limits for every of these plans. That is based mostly on what number of days within the transition yr that every plan was in impact.

SIMPLE vs. Protected Harbor

Initially, SIMPLE plans had been restricted to companies with fewer than 100 staff who earned a minimum of $5,000 in compensation. 

The contribution limits that apply to 401(okay)s are larger than these relevant to SIMPLE IRAs. In 2024, for instance, the 401(okay) restrict is $23,000 with a $7,500 catch-up possibility vs. $16,000 with a $3,000 catch-up possibility for SIMPLE IRAs.

A secure harbor 401(okay) plan should obtain 100% vested employer contributions, which may be made within the type of nonelective contributions equal to three% of compensation, no matter whether or not the worker chooses to contribute. Within the different, the employer can elect to make matching contributions of 100% on the primary 3% of compensation and 50% on the subsequent 2% of compensation. When in comparison with a standard 401(okay), nonetheless, the secure harbor 401(okay) provides decrease administrative prices.

Employers should additionally make necessary contributions to SIMPLE IRAs annually — both a 100% match of three% of the worker’s contributions or a 2% non-elective contribution.

Earlier than Safe Act 2.0, contributors in SIMPLE IRAs couldn’t roll contributed quantities over to the SIMPLE IRA for the primary two years of participation. When an employer replaces the SIMPLE plan with a secure harbor 401(okay), the quantities may be instantly rolled over to the substitute plan as long as that plan is topic to the identical distribution restrictions that apply to 401(okay)s.


Protected harbor 401(okay)s can present many advantages that the SIMPLE IRA possibility merely doesn’t supply. Increased contribution limits alone may be highly effective when attracting and retaining staff. Now that making the transition has develop into simpler, many employers might want to consider the secure harbor 401(okay) possibility going ahead.

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