Rules Governing Mid-Year Termination of SIMPLE IRAs

Many employers start off by offering a SIMPLE IRA because, as the name suggests, SIMPLE IRAs are easy to administer.  When circumstances change, the SECURE Acts no longer require the employer to wait until year-end to terminate the SIMPLE plan and start up a 401(k).  To take advantage of a mid-year termination, the employer must terminate the SIMPLE IRA by September 30 and must open a safe harbor 401(k) the day after termination.  Employees must be given 30 days notice.  Under prior law, a participant in a SIMPLE IRA could not roll over their account balance to a 401(k) if the first SIMPLE contributions occurred less than two years earlier.  Now, all SIMPLE account funds can be rolled over to the new 401(k).  In the year the SIMPLE plan is terminated, contributions are prorated based on the number of days the SIMPLE plan was in existence and the number of days the new 401(k) existed.  For more information on SIMPLE IRA rollovers, visit Tax Facts Online. Read More: Link to Q3710.  Note: Q is updated.