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Time to Re-Evaluate Your SIMPLE IRA Plan?

September 20, 2022

By John Rogers

Originally featured in SBAM’s FOCUS Magazine

If your company currently offers a SIMPLE IRA plan to employees, then you have taken an important first step in helping them plan for retirement. However, it may be useful to consider additional options.

Under the right circumstances, an alternative plan structure, such as a 401(k), may benefit employees by offering higher contribution amounts, tax advantages, potential cost savings and flexibility in plan features. Companies that sponsor a 401(k) have the responsibility to operate the plan properly and to follow a prudent process when making decisions, so consider utilizing professional resources.

Comparing SIMPLE and 401(k) Plans

SIMPLE/SEP IRAs are retirement plans that allow employees to save for retirement on a pre-tax basis. In comparison to a 401(k), SIMPLE/SEP IRAs have fewer plan design options and features. SIMPLE Plan contribution limits are lower than other plans—$14,000 plus $3,000 catch-up contributions for employees who are 50+ years old, as opposed to $20,500 plus a $6,500 catch up in a 401(k) plan.1

While SIMPLE IRAs offer small business a retirement plan solution, the benefits of a 401(k) are:

More flexibility

Higher contribution limits for all

Enhanced plan features, such as a Roth option or
Profit Sharing

Pooled Employer Plans May Make it Easier for Small Businesses to Sponsor a 401(k) Plan

While there are many 401(k) options available to employers, some small businesses are evaluating the merits of a Pooled Employer 401(k) Plan (PEP), a structure which was created by the 2019 SECURE Act. PEPs are designed with the intent to increase efficiencies, reduce burdens on employers, manage costs more effectively, and help improve retirement outcomes for the employees compared to SIMPLE IRAs.

Transitioning from SIMPLE to 401(k)

If your company determines that moving from a SIMPLE IRA plan to a 401(k) plan is prudent, the process is easy. However, you’ll want to begin discussing the process with your financial advisor now to follow the correct process before the end of the year.

SIMPLE IRAs run on the calendar year, must be the only retirement plan in operation that year and cannot be terminated mid-year. When transitioning from a SIMPLE IRA to a 401(k) plan such as the SBAM PEP, you must notify your employees within a reasonable time before November 2 that you’ll discontinue the SIMPLE IRA plan effective the following January and replace it with a 401(k).2

John G. Rogers is an Institutional Consultant and Investing with Impact Director with Graystone Consulting – Farmington Hills, a business of Morgan Stanley. He leads the group’s Morgan Stanley at Work financial wellness program and its mission and impact investing initiatives.

John graduated from Northwestern University in 2012 with a Bachelor of Arts Degree in History, a minor in Business Institutions and a Certificate in Leadership. Visit to learn more.

Graystone Consulting, a business of Morgan Stanley

35055 W. 12 Mile Road, Suite 101 | Farmington Hills, Michigan 4833


When Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors (collectively, “Morgan Stanley”) provide “investment advice” regarding a retirement or welfare benefit plan accountå, an individual retirement account or a Coverdell education savings account (“Retirement Account”), Morgan Stanley is a “fiduciary” as those terms are defined under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or the Internal Revenue Code of 1986 (the “Code”), as applicable. When Morgan Stanley provides investment education, takes orders on an unsolicited basis or otherwise does not provide “investment advice”, Morgan Stanley will not be considered a “fiduciary” under ERISA and/or the Code. For more information regarding Morgan Stanley’s role with respect to a Retirement Account, please visit Tax laws are complex and subject to change. Morgan Stanley does not provide tax or legal advice. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a Retirement Account, and (b) regarding any potential tax, ERISA and related consequences of any investments or other transactions made with respect to a Retirement Account.

Information contained herein has been obtained from sources considered to be reliable, but we do not guarantee their accuracy or completeness.

© 2022 Morgan Stanley Smith Barney LLC. Member SIPC. Graystone Consulting is a business of Morgan Stanley.

CRC 4866352 07/2022

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