Simple Plan Question

Submitted by Kevin O'Hearn on Wed, 2024-01-31 21:09

Hello,

This is related to a change from SECURE Act 2.0. It is clear that now a SIMPLE plan can be replaced mid-year with a safe harbor 401k.

There is language in the statue that talks about the 2-year funding requirement for a SIMPLE to be rolled to the 401k is also now waived. My questions are:

1. Do you interpret this waiver only be applicable in the event of a SIMPLE being replaced mid-year with a SH 401k?

2. Or would the waiver apply if a SIMPLE is being replaced by a 401k in any capacity? Meaning it would apply if replacing with a Non-SH 401k? Would it apply if being replaced on January 1 and not mid-year?

A mutual fund provider is taking the stance that this 2-year waiver is its own rule and not related to the new mid-year SH 401k replacement allowance.

Thank you.



Submitted by Alan - IRA critic on Wed, 2024-01-31 23:34

  1. No.
  2. Yes to all
  3. I agree with the fund sponsor. While the SIMPLE IRA can only be rolled over mid year to a safe harbor plan, the penalty waiver also applies to a SIMPLE IRA rolled over to any 401k or 403b plan at year end. Further,  the eligibility for the SIMPLE IRA to be rolled over at all in the first 2 years has been modified to allow rollovers to qualified plans, but mid year it is limited to the SH 401k plan. 
  4. This section is part of the general trend in Secure 2.0 to favor qualified plans and Roth contributions over pre tax IRA accounts. Note that a SIMPLE IRA cannot be rolled over to another type of IRA in the first two years, but now it can be rolled to a qualified plan. The next piece of retirement legislation might include the rollover of Roth IRAs to designated Roth accounts. 
  5. I wonder how this new provision will affect new SIMPLE Roth IRAs. 


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