SIMPLE IRA & Mid-Year SH 401(k) - Separate Plan Sponsors

[OrderOfOps]

I'd love the thinking of folks who are more well-versed in SIMPLEs. Didn't get any traction on the other board, so I thought I'd try the 401(k) board since it does involve one.

Company A maintains a SIMPLE IRA in 2024 & 2025; several employees of Company A create their own Company B in 2025. Company A maintained a SIMPLE IRA (I'm not sure if the SIMPLE IRA is still active); Company B established a 06/01/25 effective date SH 401(k) Plan (short initial Plan Year). Company A & B have different EINS with no ownership crossover.

I understand that when an employer establishes a mid-year 401(k) Plan that the deferral limit is adjusted based on the # of days/365 of each arrangement. Because these are two unrelated employers, my thinking is that this does not apply to this scenario, so all EEs can contribute the total $23.5k between the two arrangements if they would like (a maximum of $16.5k being attributable to the SIMPLE IRA).

• Do you agree that the deferral limit for the Company B 401(k) Plan does not need to be pro-rated based on the number of days it was in existence vs. the SIMPLE IRA?
• Since catch-up contributions are separate to each Plan, can a 50+ participant who contributed $10k to the SIMPLE IRA under Company A defer an additional $24.5k to the Company B 401(k) Plan? ($6.5k SIMPLE deferrals, $3.5k SIMPLE catch-up, $17k 401(k) deferrals, $7.5k 401(k) catch-up)
• If the Company B employees are still employees of Company A and participating in the Company A SIMPLE IRA, does that matter? Or is it just a consideration in that both the non-catch up deferrals to each arrangement count towards their overall 402(g) limit?
• As I write this out, I imagine that a relevant consideration is whether Company B and Company A constitute an ASG. If they do, would their contributions be subject to the adjusted deferral limits based on the days/365 of each arrangement?

[justanotheradmin]

For the ASG question - IF they are one - there is a whole other issue of not having a SIMPLE at the same time as a 401(k) plan, by the same employer. And an ASG is treated as a single employer for those purposes, so generally cannot have both in the same year. Determining the status of the SIMPLE would be very important. 

The deferral limits for short initial year 401(k) plans generally aren't pro-rated as they are personal limits, not plan limits, but the plan document should address if there is any pro-ration of limits (deferral or otherwise) for an initial short plan year where there is no prior SIMPLE or predecessor plan. If there is a basic plan document for the 401(k) plan, you should read it carefully.  

[OrderOfOps]

On 12/3/2025 at 10:34 AM, justanotheradmin said:

For the ASG question - IF they are one - there is a whole other issue of not having a SIMPLE at the same time as a 401(k) plan, by the same employer. And an ASG is treated as a single employer for those purposes, so generally cannot have both in the same year. Determining the status of the SIMPLE would be very important. 

The deferral limits for short initial year 401(k) plans generally aren't pro-rated as they are personal limits, not plan limits, but the plan document should address if there is any pro-ration of limits (deferral or otherwise) for an initial short plan year where there is no prior SIMPLE or predecessor plan. If there is a basic plan document for the 401(k) plan, you should read it carefully.  

Thank JAA. Agreed on the ASG item - hopefully the Plan Sponsor is answering correctly.

I understand that generally the 402(g) limit is a personal limit, but indications are that this is a weird mix of the Plan having a separate deferral limit imposed in this scenario. Since this is a SECURE 2.0 item, the document doesn't reflect any information about this scenario because it wasn't a possible scenario prior to SECURE 2.0.

 

From IRS Notice 2024-02 

"Section 332(a) of the SECURE 2.0 Act amended section 408(p) of the Code by adding paragraph (11). Section 408(p)(11)(A) permits an employer to elect (in such form and manner as the Secretary may prescribe), at any time during a year, to terminate the qualified salary reduction arrangement under a SIMPLE IRA plan if the employer establishes and maintains a safe harbor section 401(k) plan to replace the terminated arrangement.  

Section 408(p)(11)(B) provides a combined limit on the total of the salary reduction contributions under the terminated arrangement and elective contributions under the safe harbor section 401(k) plan for the transition year described in section 408(p)(11)(C) (that is, the period beginning after the termination date and ending on the last day of the calendar year during which the termination occurs). Under this limit, the total of those contributions must not exceed the time-weighted average of the limits that apply, on a full year basis, to a SIMPLE IRA plan (after the application of the catch-up provisions of section 414(v)) and a section 401(k) plan. "

 

Secure 2.0 Text:

The terminated arrangement and safe harbor plan shall both be treated as violating the requirements of paragraph (2)(A)(ii) or section 401(a)(30) (whichever is applicable) if the aggregate elective contributions of the employee under the terminated arrangement during its last plan year and under the safe harbor plan during its transition year exceed the sum of—

‘‘(i) the applicable dollar amount for such arrangement (determined on a full- year basis) under this subsection (after the application of section 414(v)) with respect to the employee for such last plan year multiplied by a fraction equal to the number of days in such plan year divided by 365, and

‘‘(ii) the applicable dollar amount (as so determined) under section 402(g)(1) for such safe harbor plan on such elective contributions during the transition year multiplied by a fraction equal to the number of days in such transition year divided by 365. 

[justanotheradmin]

I think the ASG question needs to be answered first. 

If there is one - the combined limits are only pro-rated under SECURE 2.0 if the SIMPLE is terminated and a replacement 401(k) is immediately put in place, and all the requirements are met.

Which doesn't sound like occurred. So trying to determine deferral limits for this scenario is outside the scope of the language in SECURE 2.0, and you need to look to EPCRS for what to do when there is both a SIMPLE IRA program and a 401(k) plan in the same year by the same employer. 

When there is a SECURE 2.0 compliant SIMPLE term + replacement 401(k) the pro-rated limits are just math, based on the days and portion of the year each one was in place. If you want some examples of how the math works, I think ERISApedia had a webinar that covered that last year, as did several other providers, if my memory serves. The combined prorated 402(g) limit is specific to that single employer, for those two (SIMPLE + 401k) combined. Not the participant. 

If the combined prorated limit is $22,000 and the employee maximized those, and also works someplace unrelated with a 401(k) plan, they can defer the difference up to the annual regular 401(k) limit. Their personal 402(g) limit is not the same as what the employer's has to apply. 

 

If there isn't an ASG - then company B is just starting a new 401(k) plan. And the short rules for pro-rating limits, whatever they are in that plan's legal document, will apply. The existence of a SIMPLE sponsored by an unrelated entity is immaterial to the analysis. 

Perhaps the question you are trying to ask is more "if a person participates in both a SIMPLE and 401(k) from two unrelated employers, how is their personal deferral limit impacted?"  not as detailed as you might need, but here is a starting point for additional reading https://www.irs.gov/retirement-plans/how-much-salary-can-you-defer-if-youre-eligible-for-more-than-one-retirement-plan

[OrderOfOps]

Thanks JAA :^)

For some reason, I was under the impression that the catch-up limit was Plan-specific (aka a person could have infinite catch-up limits being in infinite Plans). It makes a lot more sense that it is an individual limit - thanks for pointing me to actually read the regs.