If your employer switches retirement plans from a SIMPLE IRA to a 401(k), you’ll have the added benefit of being able to contribute up to the higher annual limit that applies to 401(k) plans.
For 2024, the annual deferral limit for 401(k) plans is $23,000 or 100% of your compensation (whichever is less). If you will be 50 years or older, you can defer an additional $7,500 in 401(k) catch-up contributions for this year.
However, if your employer-sponsored plan switched from a SIMPLE IRA to a safe harbor 401(k) mid-year, the amount you can contribute to the 401(k) and SIMPLE IRA will be prorated for that year.
Here’s how to determine the limit that will apply to your 401(k) after the conversion.
How to determine the 401(k) limit after a SIMPLE IRA conversion
The prorated limit on the amount you can contribute to the 401(k) plan only applies during the year of transition between the SIMPLE IRA and the 401(k) plan. The standard 401(k) deferral limit will apply in all subsequent years.
The amount you can contribute to the 401(k) will be determined by calculating the following:
Prorated SIMPLE IRA limit: Multiply the 2024 SIMPLE IRA deferral limit by a fraction equal to the number of days the SIMPLE IRA was in effect for that year divided by 365.
+
Prorated 401(k) limit: Multiply the 2024 401(k) deferral limit by a fraction equal to the number of days the 401(k) was in effect for that year divided by 365.
-
SIMPLE IRA deferrals: The total deferrals you made to the SIMPLE IRA in the year of transition.
An example of how the limit would apply
Adric’s employer had a SIMPLE IRA plan that they replaced with a safe harbor 401(k), effective October 1, 2024. Adric’s year-to-date deferrals into the SIMPLE IRA was $10,000 and the SIMPLE IRA limit in effect for the plan was $19,500. Adric is not old enough to make catch-up contributions.
As a result, Adric’s deferral limit for the 401(k) plan for 2024 is:
Prorated SIMPLE IRA limit: $19,500 x (273/365) = $14,581.93
+
Prorated 401(k) limit: $23,000 x (92/365) = $5,797.26
-
SIMPLE IRA deferrals: $10,000
=
$10,379.19
If your SIMPLE IRA was recently terminated and a Guideline 401(k) was established to replace it, you can find more information about the SIMPLE IRA deferral limit in the supplemental safe harbor notice you received by email. A copy of this notice will also be available in the Resource Library of your dashboard under the “Notices & Disclosures” folder.