SIMPLE IRA Plan Termination
Secure 2.0 allows an employer to terminate their SIMPLE IRA plan mid-year and replacing it with a Safe Harbor 401(k) (effective in 2024). One of the (many) requirements ensuring a compliant transition mandates —- the total employee elective contributions must not exceed the weighted average of limits for each plan during the transition year.
What is meant by “weighted average”? How is weighted average determined?
Thank you
Permalink Submitted by David Mertz on Thu, 2024-01-04 18:19
26 USC 408(p)(11) essentially says that the weighted average for the transition year is the individual’s annual deferral limit (including catch-up) for the SIMPLE plan multiplied by the number of days that the SIMPLE plan was in effect for that year plus the individual’s annual deferral limit (plus catch-up) multiplied by the number of days that the 401(k) plan is in effect for that year, all divided by 365.