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Tuesday, April 16, 2024

Safe 2.0 Clears Path for a SIMPLE IRA-to-Protected Harbor 401(ok) Change

In the course of the yr of transition, the overall quantity contributed as wage discount contributions underneath the terminated SIMPLE IRA plan and as elective contributions underneath the protected harbor 401(ok) plan can not exceed the weighted common of the wage discount contribution and elective contribution limits for every of these plans. That is primarily based 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 workers who earned not less than $5,000 in compensation. 

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

A protected harbor 401(ok) plan should obtain 100% vested employer contributions, which might 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 following 2% of compensation. When in comparison with a standard 401(ok), nonetheless, the protected harbor 401(ok) provides decrease administrative prices.

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

Earlier than Safe Act 2.0, individuals 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 protected harbor 401(ok), the quantities might be instantly rolled over to the alternative plan as long as that plan is topic to the identical distribution restrictions that apply to 401(ok)s.


Protected harbor 401(ok)s can present many advantages that the SIMPLE IRA choice merely doesn’t provide. Larger contribution limits alone might be highly effective when attracting and retaining workers. Now that making the transition has turn out to be simpler, many employers could want to consider the protected harbor 401(ok) choice going ahead.

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