With so many changes to retirement planning recently, it can be challenging to keep up. But one change starting in 2024 could benefit small businesses.

In 2024, a SIMPLE IRA can be replaced midyear with a safe harbor 401(k) plan. That change became law under the SECURE 2.0 legislation. This ability can be beneficial for small businesses that for whatever reason missed the notification requirement to terminate a SIMPLE IRA at year’s end.

Without this law change, small business owners would have to wait until Dec. 31, 2024 to make the change because of rules surrounding notifying employees. But with the law change, employers can terminate or convert SIMPLE IRAs earlier in 2024 if they replace it with a safe harbor 401(k) plan – as long as its in operation on the date of the termination.

While some small businesses find SIMPLE IRAs a good fit, sometimes a 401(k) plan can work better because it has higher contribution limits and is more flexible. A SIMPLE IRA does have benefits however, in that it is easy to administer and low-cost.

Some employees might be of the opinion that a 401(k) is better than a SIMPLE IRA.

In the past, employers couldn’t keep a SIMPLE IRA and another plan due to the “exclusive plan rule.” But SECURE 2.0 changed that.

There is still a need for additional guidance from the IRS about mid-year replacements, such as notification requirements – so stay tuned! There have been plenty of changes so it’s important to stay on top of all things retirement planning nowadays.

Do you still have questions about retirement planning options?

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If you have other questions about retirement plan loans, email us or call 937.308.0758.