The dog days of August bring us annual events with summer winding down, kids getting ready to go back to school, football games right around the corner and…Safe Harbor season in the air!
The 2025 Safe Harbor season is even better since companies are now allowed (since 2024) to switch from a SIMPLE IRA to a SH 401k plan mid-year. News to you? Weren’t aware of that new rule? You’re not alone! But fear not, the 401GO team is at your side this Safe Harbor season!
Many Employers Prefer Safe Harbor Plans
Safe Harbor plans have many advantages over SIMPLE IRA plans.
- Higher contribution limits: 401(k) plans can defer up to $23,000 (in 2025) compared to just $16,000 with a SIMPLE IRA.
- Flexible plan design: SIMPLE IRA plans require a 3% match or a 2% nonelective contribution, with no exceptions, while Safe Harbor 401(k)s have multiple contribution formulas and allow additional discretionary profit-sharing.
- Avoiding testing headaches: Safe Harbor 401(k) plans are exempt from ADP/ACP testing, which ensures highly compensated employees can contribute the maximum without refund issues.
- Employee perception: 401(k) plans are seen as a more robust and standard retirement benefit, supporting features like loans, Roth contributions and automatic enrollment that SIMPLE IRAs don’t allow.
Companies that wish to attract and retain top talent often choose a Safe Harbor 401(k) over a SIMPLE IRA plan.
Explore the Details
There are 90 provisions in the SECURE 2.0 Act ranging from expanded coverage and increased retirement savings to simplification of retirement plan rules and technical amendments and more. Included in this basket of improvements is the new(er) provision allowing for businesses to make mid-year changes from their SIMPLE IRA plan to a Safe Harbor 401(k) plan without having to wait until year end.
There are rules around making these changes that are important to understand. Here are the big ones, but be aware that a few others will require your attention if you intend to make the switch.
- You must make the switch by the annual Safe Harbor deadline of September 30th.
- You must send SIMPLE IRA termination notices and new Safe Harbor plan notices 30 days in advance of the change.
- You must prorate elective deferrals.
Consider a 401GO Safe Harbor 401(k)
Making the switch to a 401(k) plan is an easy process with 401GO. Our quick and easy 15-30 minute new plan setup process includes a dedicated client success manager (CSM) assigned to every new plan. The CSM will help the plan sponsor and their advisor partner with the new plan implementation as well as ongoing needs once the plan goes live.Information about this provision for you or your clients is only an email, phone call and click away, and we’re happy to help. Happy Safe Harbor season!
