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Limits when replacing SIMPLE-IRA mid-year with a Safe Harbor 401(k)


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IRS Notice 2024-2, Section G, Q&A-7 re Section 332 of SECURE 2.0, provides the following:

When the SIMPLE IRA plan is replaced by the safe harbor section 401(k) plan mid-year, the total amount that may be contributed as salary reduction contributions under the terminated SIMPLE IRA plan and as elective contributions under the safe harbor section 401(k) plan may not exceed the weighted average of the salary reduction contribution and elective contribution limits for each of those plans (weighted by how many of the 365 days in the transition year each plan was in effect). Thus, the total amount that may be contributed as elective contributions to the safe harbor section 401(k) plan is equal to:

(1) The annual limit on salary reduction contributions under a SIMPLE IRA plan for the year (taking into account catch-up contributions described in section 414(v)), multiplied by a fraction equal to the number of days the SIMPLE IRA plan was in effect for that year divided by 365, plus

(2) The annual limit on elective contributions under a section 401(k) plan for the year, under section 402(g), multiplied by a fraction equal to the number of days the safe harbor plan was in effect for that year divided by 365, minus

(3) Any salary reduction contributions under the SIMPLE IRA plan for the year.

 

(1) above specifically includes catch-up contributions under 414(v) in the calculation, whereas (2) does not. Does this mean the fraction in (2) is only taking into account the $23,000 limit, and not including the $7,500 catch-up? That's how I read it, although it doesn't make sense to me... 

 

 

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17 hours ago, Belgarath said:

 

(1) above specifically includes catch-up contributions under 414(v) in the calculation, whereas (2) does not. Does this mean the fraction in (2) is only taking into account the $23,000 limit, and not including the $7,500 catch-up? That's how I read it, although it doesn't make sense to me... 

 

 

You include both catch-ups.  They could have drafted the language better, but the reason is that 414(v) is referenced in 402(g) but it is not referenced in 408(p).  That's why they mention it for the simple.

 

 

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Thanks. I thought about this last night, as it had a chance to percolate a bit in my so-called brain, and that's what I came up with as well. I appreciate the confirmation!!

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