Secure 2.0 made numerous significant changes to all retirement plans including SEP and SIMPLE plans. Below is a summary of the changes specific to SEP and SIMPLE plans, the date they will be effective, and a summary of what will change:
Roth Contributions allowed in SEP and SIMPLE IRAs
Effective for tax years beginning after December 31, 2022, SEP and SIMPLE IRA plans are allowed to have both Roth employee deferral and employer contributions.
Increased Employee Deferral Limit
Under current law, the 2023 employee deferral limit for a SIMPLE plan is $15,500 for those employees that are not catch-up eligible (under age 50 in 2023) and $19,000 for those employees that are catch-up eligible (50 or older in 2023).
Effective for tax years beginning after December 31, 2023, the SIMPLE plans deferral and catch-up contribution limits will be increased to 110% of the 2024 SIMPLE limits for employers with 25 employees or less. Employers with 26 to 100 employees will also be permitted to provide the higher employee deferral limits if they provide for either a 4% employer match or a 3% nonelective contribution.
Additional Nonelective SIMPLE Plan Contributions Allowed
Historically, SIMPLE plans have only provided for a 3% employer match contribution or a 2% nonelective contribution.
Effective for tax years beginning after December 31, 2023, the act now allows employers to make additional nonelective contributions to eligible employees in SIMPLE plans. The additional nonelective contribution must not exceed the lesser of 10% of compensation or $5,000 per employee. These additional nonelective contributions must be allocated pro-rata based on compensation.
Mid-year conversion of SIMPLE IRA to safe harbor 401(k) Plan
In the past, SIMPLE IRA plan sponsors have been prohibited from converting to a 401(k) plan in the middle of a calendar year.
Effective for plan years beginning after December 31, 2023, plan sponsors are allowed to replace their SIMPLE IRA plan with a 401(k) plan that requires a mandatory employer contribution such as a safe harbor 401(k) plan. The change also allows for a waiver of the two-year rollover limitation in SIMPLE IRAs when converting to the safe harbor 401(k) plan.
Connect With SDK
There are many more provisions contained in Secure 2.0 that will have an impact retirement plans as well as SIMPLE and SEP plans. We will continue to highlight more changes in articles to come. If you have any questions on how this may affect you or your plan, please reach out to Nicole Brown or Cole Hegstad at SDK and they will be happy to assist you!