Photo of big goldfish in a small bowl
Now’s The Time For An Upgrade!
October 4, 2021 | posted in: Accountants | by Frye Retirement
Your Clients May Have Outgrown Their Simple IRAs…Here’s How To Increase Their Deductions, But You Must Act Before The Deadlines
Your clients may have started their businesses with a SIMPLE IRA but most businesses quickly outgrow them and find they need to upgrade to a 401(k) profit sharing plan. Replacing a SIMPLE plan with a 401(k) plan is easy, but you must start the process well before the 12/31/21 deadline. Upgrading your clients to a 401(k) plan offers them several benefits including:
- Higher contribution/deduction limits. The deferral contribution limit for a SIMPLE IRA is $13,500 or $16,500 for employees 50 or older. For employers that would like to increase their contributions, moving to a 401(k) plan may allow them to save more. For tax-year 2021, the 401(k) limit is $19,500 for those under age 50, or a total of $26,000 for those age 50 or older. PLUS, your clients can fund an additional discretionary profit sharing contribution.
- The ability to make Roth contributions. SIMPLE IRAs do not allow for Roth contributions. By establishing a 401(k), plan participants may choose to make both Traditional and Roth contributions to the same plan.
- More flexibility in plan design. A 401(k) profit sharing plan offers increased flexibility that may result in larger deductions and higher retirement savings, benefiting the employer and employees alike. Additional options are available through 401(k) plans, such as automatic enrollment, loans, hardships distributions, and varied vesting schedules.
- The ability to offer other retirement plans. A 401(k) plan allows for additional retirement plans while a SIMPLE IRA requires that no other plan be offered.
Converting your client’s SIMPLE IRA to a 401(k) plan may increase your clients’ deductions; to do so in advance of the initial November 2nd deadlines, contact us today.
