Can I rollover a SIMPLE IRA to a 401(k)?
Companies can now transition from a Simple IRA to a specific type of 401(k) plan called the Safe Harbor 401(k) at any point during the year. This allows small business owners to take advantage of the higher contribution limits, flexibility, and loan features of a 401(k) plan.
SIMPLE IRA vs 401(k)
Both a SIMPLE IRA and a 401(k) are employer-sponsored retirement plans, but many businesses switch to a 401(k) for added perks like Roth options, loan access, and much higher contribution limits.
| Core Feature Differences | SIMPLE IRA | Safe Harbor 401(k) |
|---|---|---|
| Employee Contribution Limit - 2025 | $16,500 | $23,500 |
| Ages 50-59 or 64+ Catch-Up Contribution Limit | $3,500 (for a total of $20,000) | $7,500 (for a total of $31,000) |
| Ages 60-63 Catch-Up Contribution Limit | $5,250 (for a total of $21,750) | $11,250 (for a total of $34,750) |
| Roth Option | Not applicable | Yes – no income limit to use |
| 401(k) Loans | Not applicable | Available to withdraw with no taxes or penalties, 50% of your savings (up to $50,000). Accrues interest and must be paid back within 5 years.* |
| Employer Matching / Contribution | 3% of salary to all those contributing and at least 2% to those who are not | Various options – Safe Harbor designs are typically 3% or 4% of salary depending on needs. |
What are the steps to replace your SIMPLE IRA with a Safe Harbor 401(k)?
You will need to plan a few things to ensure your transition to a Safe Harbor 401(k) goes smoothly.
-
You will need to identify your preferred 401(k) provider and start a Safe Harbor 401(k). Like a SIMPLE IRA, an immediate vesting match is required. As you prepare your new plan, you’ll want to square away the following with your 401(k) provider:
- Verify an appropriate termination date for the SIMPLE IRA and ensure your SIMPLE IRA and 401(k) provider are both aligned on this timing.
- If you have payroll integration, you will want to know the requirements and ensure your 401(k) provider supports you as you prepare to switch. If you do not have payroll integration, just be familiar with the input or upload process, so it goes smoothly. You will need to ensure your employee information is loaded with your 401(k) provider during the install process.
- We also suggest having your 401(k) provider conduct an employee education kick-off meeting at launch.
-
When you replace a SIMPLE IRA with a Safe Harbor 401(k) during the year, you will need to work with your 401(k) provider to determine the contribution limit that employees may put away during the current year. It is basically a weighted average of SIMPLE IRA and 401(k) contribution limits for the year the plan is converted. As the next calendar year kicks off, only the 401(k) contribution limits will apply.
-
As you are set to roll out the Safe Harbor 401(k) plan, you will need to provide two notices to employees; one that states the SIMPLE IRA termination and one that announces the Safe Harbor 401(k). Your provider likely has notices you can use or tailor for your needs.
Once your Safe Harbor 401(k) is live and you get near year end, most providers have a year-end census process. You’ll want to make sure to include all SIMPLE IRA contributions made during the year. This will keep your plan in compliance; or allow you to make adjustments to ensure it is.
While retirement plan conversion takes a little planning, the benefits to owners and employees can make a big difference in saving more for retirement (and managing personal taxes, too). Ready to explore your options? Connect with our experts today.
What is a Safe Harbor 401(k)?
Safe Harbor 401(k) plans enable small business owners to take advantage of higher contribution limits into a tax-deferred retirement account while automatically satisfying government required non-discrimination compliance tests. While some businesses are concerned with the cost of providing a match, it is typically 100% tax deductible. Talk to our retirement experts today to uncover the key differences and find the best plan for your business.
Tax Credit Covers 100% of New Plan Costs for the First Three Years
The cost of switching from a SIMPLE IRA to a Safe Harbor 401(k) could be completely covered by tax credits**. This credit can be applied to 100% of your qualified business 401(k) costs such as plan setup and administration. There is also a tax credit available to help cover employee matching for the first 5 years of a new 401(k) plan.
To qualify, your business must have less than 50 employees, though those with 51-100 employees can also receive a reduced tax credit. The startup credit for both business sizes is capped at $5,000 per year for three years, for up to a total of $15,000 in tax credits. Make sure to confirm with your tax professional how much of a credit your new plan could receive.
Key Takeaways:
-
Small businesses can now switch from a SIMPLE IRA to a Safe Harbor 401(k) at any time during the year, unlocking higher contribution limits, Roth options, loan flexibility, and greater control over retirement savings and tax management.
-
SIMPLE IRAs and 401(k)s are both employer-sponsored plans, but a Safe Harbor 401(k) offers higher contribution limits, Roth options, and loan access that SIMPLE IRAs don’t. This gives owners and employees more ways to maximize savings and flexibility for retirement.
-
To replace a SIMPLE IRA, select your 401(k) provider, align your termination date, update payroll, send employee notices, and coordinate contributions. Your provider will guide setup, compliance, and education to ensure a smooth and compliant transition.
ShareBuilder 401k does not offer tax or legal advice. Consult with your tax or legal advisor before engaging in specific strategies.
*Loan balances must be paid off in five years and if you leave your job, you may be required to pay back the full balance within a short-time frame or pay penalties and taxes. Most important, borrowing from your 401(k) can significantly reduce your retirement savings.
**View important disclaimers on how 401(k) tax credits work.