Converting from a SEP to a Simple IRA

[metsfan026]

I'll be honest, I don't have much experience in this area but I have someone asking me questions.  Someone wants to change their SEP to a Simple IRA.  Are there any issues with doing this and can they still contribute to the Simple IRA? 

[Bird]

They are separate animals, but both vehicles for getting money into an IRA(s) - with different documents and different accounts. A SEP has optional contributions so you can just stop making contributions, and set up a new SIMPLE. There is a general prohibition on making SIMPLE contributions in the same year as any other plan, except when you start a SH 401(k), but that doesn't seem to apply here. I don't understand the question about "still" contributing to the SIMPLE when that is the new plan.

[Gary Lesser]

If SEP contributions have been made for the 2024 CY, then a new" SIMPLE IRA/Roth plan will have to wait until next year. [I.R.C. § 408(p)(2)(D)]

For 2024, the SIMPLE limit is $16,000 (but increased to $17,600. (SECURE 2.0, §117)

Also, additional non elective SIMPLE contributions now permitted up to 10% of first $345k of compensation (not to exceed $5,000). (SECURE 2.0, §116)

Next year, additional SIMPLE catch-up contributions allowed if age 60, 61, or age 62. (SECURE 2.0, § 109)

Existing model and prototype plans may be used for all of the above (prior to updating and amendment). [I.R.S. Notice 2024-2]

If client has been maintaining both a SEP and a SIMPLE IRA/Roth, then client has some problems.

Participation in either plan generally results in "active participation" status. Subject to AGI limits, client could still contribute to an IRA or Roth IRA, or a nondeductible IRA. With most trustees/custodians, the same IRA can be used to receive "annual" contributions.

I assume you meant contributions are or were were being made to SEP

Hope this helps. 

~~Gary