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Evaluating the Transition: Is it Time for You to Convert from a SIMPLE IRA to a 401(k)?


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Evaluating the Transition: Is it Time for You to Convert from a SIMPLE IRA to a 401(k)?

Small business owners often start with a SIMPLE IRA to kickstart their retirement savings journey. However, as their businesses grow and they approach contribution limits, it becomes evident that they need a more robust retirement savings solution. In this article, we explore why converting to a 401(k) can significantly benefit your business owner clients.

Why Choose a 401(k) for Your Business Owner Clients

Let’s compare the advantages of a SIMPLE IRA and a 401(k) plan:



401(k) with Profit Sharing

The 401(k) Profit Sharing Advantage

Contribution Limit (includes catch-up)



$54,500 more in savings

Profit Sharing

Not Permitted


Ability to tailor contributions to specific groups

Employer Contributions

Mandatory contributions by the employer

Optional contributions by the employer

Flexibility in incentivizing retention

Vesting Schedule

No Vesting Schedule

Vesting Schedule Available

Encourages employee retention


<100 Employees

Suitable for ALL Employer Sizes

Scalable with business growth

Tax Credits


Potential $1,000 tax credit per employee contribution*

Tax incentives for businesses

*See SECURE 2.0 Act Contribution Tax Credit

As evident from the table, a 401(k) plan with profit-sharing offers several advantages over a SIMPLE IRA, making it a compelling choice for business owner clients:

  1. Higher Contribution Limit: The 401(k) plan allows for significantly larger annual contributions, providing your clients with the potential to save $54,500 more for retirement compared to a SIMPLE IRA.
  2. Profit Sharing: Unlike a SIMPLE IRA, a 401(k) plan with profit-sharing permits tailored contributions, allowing businesses to reward specific groups or individuals based on performance.
  3. Employee Contributions: The 401(k) plan offers flexibility as it doesn’t mandate employee contributions. This flexibility can be used to incentivize employee retention and reward top talent.
  4. Vesting Schedule: With a 401(k) plan, employers can implement vesting schedules, which encourage employee retention by providing ownership of employer contributions over time.
  5. Suitable for All Sizes: While SIMPLE IRAs are limited to businesses with fewer than 100 employees, 401(k) plans are scalable and suitable for all sizes of employers, adapting as the business grows.
  6. Tax Credits: Businesses transitioning to a 401(k) may be eligible for tax credits, reducing the cost of adoption.

If you’re considering converting your client’s SIMPLE IRA to a 401(k), it’s crucial to act promptly. To transition an existing SIMPLE IRA to a 401(k), Plan Sponsors must send participant notices announcing the plan’s termination by the November 2nd deadline.

Don’t miss out on the opportunity to provide your business owner clients with a more robust retirement savings solution. Contact us today to explore the benefits of transitioning to a 401(k) plan.