When it comes to financial decisions, it’s important to understand the details of what you’re doing with your money. PlanPerfect is proud to specialize as a third-party retirement plan administrator to help more effectively manage the retirement plans of your employees. This includes keeping your company up to date on the latest IRS changes that can impact your company and your staff. One of those major changes this year includes the need to allow employers to convert from a SIMPLE to a 401k plan. While many of these changes have been effective since January, others began in 2024. These changes will remain ongoing, therefore highlighting the importance of understanding the details.
IRS Changes Require Mid-Year Conversions
In the past, employers have only been able to convert a SIMPLE plan to a Safe Harbor 401(k) plan at the start of each plan year. The new rules – brought upon by the SECURE 2.0 Act – state that mid-year conversions are now allowed, albeit with a few caveats. This change allows more flexibility to employers, but it’s important to understand the required guidelines.
- The allowed mid-year conversion only includes moving from a SIMPLE IRA or SIMPLE 401(k) to a Safe Harbor 401(k) plan.
- Employers must provide two 30-day notices, one indicating termination of the SIMPLE plan, and a second notice regarding the start of the Safe Harbor plan.
- Employers will be required to calculate pro-rate deferral limits based on the number of days each plan was in effect, providing custom notices for the plan participant.
SECURE 2.0 Brings Contribution, Rollover, and Extension Changes
Secure 2.0 has also brought contribution and rollover changes that are important to understand.
- Roth Contributions: Effective since January 2023, employees are allowed to make Roth contributions to both SIMPLE IRAs, just like with traditional pre-tax deferrals. Employers are able to offer Roth contributions on their contributions to employee accounts. Employees are required to opt on to make these Roth contributions – it’s not automatic.
- SIMPLE Contributions: SECURE 2.0 has increased the SIMPLE IRA contribution limits by 10% for employees and catch-up contributions. Effective now, the employee deferral limit has increased from $16,000 to $17,600, and the catch-up limit has increased from $3,500 to $3,850. Important information to note:
- Employers must not have had a 401(k) or similar qualified plan for the past three years.
- Employers with less than 25 employees will see an automatic increase.
- Employers with more than 25 employees must elect to increase contributions to 100% match up to 4% of compensation or 3% non-elective compensation.
- Employers must inform employees about increased limits by November 1 of the year before changes take effect. Since the IRS provided guidance so late in the year, increases will not apply until 2025.
- Rollovers: Rollover funds for 401(k) plans are subject to the same 401(k) distribution rules. As for early rollovers, employees can now rollover SIMPLE IRA funds to a 401(k) plan without worrying about the 2-year restriction or 25% additional tax.
- Tax Forms: There have been tax form changes enacted for employers when it comes to retirement plan information.
- Form 5530: This form is used to report and correct retirement plan compliance issues, such as excess contributions.
- Form 8868: New in 2024, employers who are in need of more time will need to fill out form 8668. This form requires an estimate of taxes due with an explanation of why form 5330 can’t be turned in on time. Staying on top of deadlines can help avoid expensive and complicated extensions.
Put Your Trust in PlanPerfect Corporate Retirement Plan Specialists
The SECURE 2.0 Act of 2022 brought several retirement plan changes to fruition, with many aspects still rolling out toward the end of 2024. The staggered implementation can create confusion when it comes to the fine details of the new rules. Obtaining a solid understanding of how these changes impact your business is vital to keeping a streamlined and effective system in place. PlanPerfect has a skilled team of professionals who would be happy to help keep your employer retirement information in line, answer any questions you have, and guide you through the inevitable changes to come. Contact us today to get started!
