SIMPLE IRA and 401K (Non-safe harbor) in the same year

Hello,
Thank you for your help in advance.
Client had a SIMPLE IRA plan till the end of 2023, and set up a 401K in 2024. Due to the timing, their 401K was effective as 02/2024. So, they made both salary deferral contribution and employer matching contribution to their existing simple ira for January 2024.

Would this be an issue? if so, what are ways to fix it?



Yes, both plans cannot be active in the same calendar year. The easiest fix would be to not fund the 401k until 2025 and continue the SIMPLE IRA through year end. Otherwise, the SIMPLE IRA salary reduction contributions would have to be returned to the employer, and there would be no contributions or plan for January. If this is a solo K it would be easier than if employees with separate SIMPLE IRA accounts are involved. Another possibility might be to see if the 401k can be changed to a safe harbor plan effective 2/1,



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