SIMPLE IRA to 401(k): when and how to switch
A SIMPLE IRA is a good first plan. As a business grows, owners often want more room to save and more flexibility than it allows. Switching to a 401(k) is common, but the timing rules are strict, because a SIMPLE IRA generally has to be the employer's only plan for the year. Here is how the switch works. Thinking about it? Request a plan review.
Why owners switch
- Higher limits: in 2026, employees can defer up to $24,500 in a 401(k), compared with $17,000 or $18,100 in a SIMPLE IRA (see SIMPLE IRA vs. SEP IRA vs. 401(k)).
- Profit sharing: a 401(k) can add discretionary profit sharing, so total annual additions can reach $72,000 per person, plus catch-up.
- Design choices: vesting schedules, Roth options, loans and eligibility rules that a SIMPLE IRA doesn't allow.
- Size: a SIMPLE IRA is limited to employers with 100 or fewer employees.
Option 1: Switch on January 1
This is the traditional path and the simplest to administer.
- Choose the 401(k) provider and plan design early in the fall.
- Tell employees the SIMPLE IRA will end. The notice must go out before the SIMPLE IRA's 60-day election period, which starts November 2, so plan to send it by November 1.
- Keep making SIMPLE IRA contributions through December 31, including the required match or nonelective contribution for the full year.
- Start the 401(k) on January 1, with its notices delivered beforehand. A safe harbor match design requires a notice 30 to 90 days before the plan year.
Option 2: Switch mid-year to a safe harbor 401(k)
Since 2024, SECURE 2.0 lets an employer end a SIMPLE IRA partway through the year, but only if it is replaced by a safe harbor 401(k). The trade-offs:
- Notices: employees receive notice of the SIMPLE IRA's termination and the safe harbor notice for the new plan, generally 30 days ahead.
- Prorated limits: for the transition year, each employee's deferral limit is a blend of the two plans' limits, based on how many days each plan was in effect, minus what they already deferred to the SIMPLE IRA.
- Coordination: the SIMPLE IRA provider, the new 401(k) provider and payroll all need the same dates.
What happens to existing SIMPLE IRA balances
Employees' SIMPLE IRAs stay in their names. Money in its first two years of SIMPLE IRA participation can generally move only to another SIMPLE IRA without a penalty. After two years, employees can usually roll it into the new 401(k) if the plan accepts rollovers.
Don't forget CalSavers and credits
A 401(k) keeps you exempt from CalSavers, but keep your status on the CalSavers employer portal current if CalSavers asks (see how to certify your CalSavers exemption). Because the business already had a plan, the SECURE 2.0 startup and contribution credits generally won't apply to the new 401(k), though the automatic enrollment credit may.
Common questions
Can I have a SIMPLE IRA and a 401(k) in the same year?
Generally no. A SIMPLE IRA must be the employer's only plan for the year. The exception, under SECURE 2.0, is ending the SIMPLE IRA mid-year and replacing it with a safe harbor 401(k).
When do I have to tell employees I'm ending our SIMPLE IRA?
To switch on January 1, notify employees before the SIMPLE IRA's 60-day election period begins on November 2. For a mid-year switch to a safe harbor 401(k), notices generally go out 30 days before the change.
Can employees roll their SIMPLE IRA into the new 401(k)?
Usually, after two years of SIMPLE IRA participation, if the 401(k) accepts rollovers. During the first two years, SIMPLE IRA money can generally move only to another SIMPLE IRA without a penalty.
Wondering whether it is time to switch?
We’ll compare your SIMPLE IRA with a 401(k) design using your payroll, and map out the timing. The initial plan review is complimentary, and we aim to reply within one business day.
Request a plan reviewGeneral educational information as of September 27, 2026; limits and rules change. Not individualized investment, tax or legal advice. Consult your tax adviser about your situation.