How to Transition from a SIMPLE IRA or SEP to a 401(k) Plan

Many small businesses start with a SIMPLE IRA or SEP IRA because they’re easy to set up and require minimal administration. But as your company grows, these plans can quickly become limiting—especially when it comes to contribution flexibility, employee engagement, and compliance advantages.

Transitioning from a SIMPLE or SEP to a 401(k)—particularly a Pooled Employer Plan (PEP)—can help you reduce costs, improve benefits, and take full advantage of modern retirement plan features. This article explains when and how to make the switch smoothly and how Apex Wealth Path can guide you every step of the way.

Both SIMPLE and SEP IRAs are great starting points for small businesses, but they come with clear limitations once your team expands or your goals evolve. SIMPLE IRAs are known for their low-cost, easy setup but have lower contribution limits, mandatory employer matches, and no Roth options. SEP IRAs allow higher employer contributions but are funded entirely by the employer, offer no employee deferrals, and have limited customization. As soon as you want to give employees more control, introduce matching flexibility, or add vesting schedules, a 401(k) becomes the smarter long-term solution.

The advantages of upgrading to a 401(k) are substantial. For starters, contribution limits are significantly higher. In 2024, SIMPLE IRAs cap employee contributions at $16,000, while 401(k)s allow $23,000—plus an additional $7,500 in catch-up contributions for employees aged 50 and older. That increase gives both employees and business owners more room to build long-term savings.

A 401(k) also introduces options that SIMPLE and SEP plans lack. Employees can choose between pre-tax and Roth contributions, giving them more flexibility in managing their tax exposure both now and in retirement. Employers gain greater control and customization through adjustable match formulas, profit-sharing options, and vesting schedules. For growing businesses, this means the ability to design a plan that aligns more closely with culture, retention goals, and cash flow.

Cost can also become more favorable with the right structure. By joining a Pooled Employer Plan, employers share administrative costs with other companies in the plan, accessing institutional-level pricing and streamlined compliance services that would be cost-prohibitive individually. Additionally, under a PEP, the Pooled Plan Provider—like Apex Wealth Path—assumes most fiduciary and administrative responsibility, dramatically reducing the employer’s liability and workload.

Timing the transition is critical. In most cases, you can move from a SIMPLE or SEP to a 401(k) at the start of a new calendar year. SIMPLE IRAs must remain active through December 31 of any given year, and new 401(k) contributions can begin January 1 of the following year. SEP IRAs can typically be terminated at any time once contributions for that tax year are complete. Planning ahead ensures a seamless transition without disrupting employee savings or contributions.

A successful transition involves several coordinated steps. The process begins with assessing your current plan—reviewing participation rates, contribution levels, and overall costs. Next, you’ll work with Apex to design your new 401(k) structure, tailoring eligibility, vesting, and matching to your company’s objectives. We then coordinate timelines between payroll and plan providers to ensure a clean January 1 launch, communicate upcoming changes to employees, and help them understand the benefits of the new plan. After year-end, assets from SIMPLE or SEP accounts can typically be rolled into the new 401(k) plan with no disruption to balances or contributions.

At Apex Wealth Path, we make the entire process effortless. Our team manages all compliance and plan documentation, coordinates with your current provider and payroll system, oversees employee education and enrollment, and ensures contributions continue smoothly. We handle the details so you can stay focused on running your business.

If your SIMPLE or SEP IRA no longer meets your needs, transitioning to a 401(k)—especially through a Pooled Employer Plan—is the next logical step. You’ll gain higher contribution limits, greater plan flexibility, enhanced compliance protection, and professional support without adding administrative burden.

Talk to Apex Wealth Path to learn how easy it is to upgrade your plan and transition to a 401(k) built for growth.