As a company offering a SIMPLE IRA as part of your employee benefits package, you’ve likely reached a point where you’ve realized a 401k may be a better retirement plan option for your organization. Whether you’re growing in size, want to add a loan feature, or are interested in allowing higher contributions, it’s time to consider a SIMPLE IRA rollover to a 401k. But just what are the steps to a conversion? Let’s find out. Show
In this article, we’ll explain what’s involved when completing a SIMPLE IRA rollover to a 401k, when you can convert, and any tax implications to your business or your employees. After reading this, you’ll know how to make the switch and all the rules you need to follow to be able to offer a 401k at your company. What are the pros and cons of a SIMPLE IRA vs a 401k?Before making the switch from a SIMPLE IRA to a 401k, it’s a good idea to review the pros and cons of each to make sure your decision is right for your company. SIMPLE IRA Pros
SIMPLE IRA Cons
401k Pros
401k Cons
How do I convert a SIMPLE IRA into a 401k?If you’ve reviewed the pros and cons of both types of plans and still feel like switching to a 401k is the best choice for your business at this time, then there are several SIMPLE IRA rollover rules you’ll need to follow to complete the transition.
When can a SIMPLE IRA rollover occur?While there is no absolute deadline for completing the conversion process, it’s important to understand that SIMPLE IRAs are calendar-year plans and can’t be terminated mid-year. Moreover, since you can’t have a SIMPLE IRA and another retirement plan in place at the same time, that means if you want to convert to a 401k for next year, you’ll have to terminate your SIMPLE IRA before the end of the current year. Employees can then start contributing to their new 401k starting January 1. Are their tax implications of performing a SIMPLE IRA rollover?Both SIMPLE IRAs and 401ks are tax deferred plans that allow workers to make pre-tax contributions from their paychecks. Workers then have to pay income tax on the funds when they’re withdrawn (except in the case of a Roth 401k) and possibly an additional tax if they’re not at least age 59 ½. Can I transfer my 401k to a SIMPLE IRA?Transfers to SIMPLE IRAs
A new law in 2015 now allows a SIMPLE IRA to also accept transfers from traditional and SEP IRAs, as well as from employer-sponsored retirement plans, such as a 401(k), 403(b), or 457(b) plan.
Can you roll a 401k into an IRA without penalty?Can you roll a 401(k) into an IRA without penalty? You can roll over money from a 401(k) to an IRA without penalty but must deposit your 401(k) funds within 60 days. However, there will be tax consequences if you roll over money from a traditional 401(k) to a Roth IRA.
Can you roll a 401k into an IRA at any time?Yes. You can roll over almost any type of employer-sponsored retirement plan, such as a 401(k), 403(b), or 457 into a Vanguard IRA.
Is a SIMPLE IRA better than a 401k?The main benefit of a SIMPLE IRA is the lower cost of setup and administration. If a SIMPLE IRA meets the needs of your employees, it's a much better choice than a 401(k). But if you need more flexibility and higher contribution limits, a 401(k) is worth the expense.
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