How to Transition from a SIMPLE IRA or SEP to a 401(k) Plan
Many businesses start with a SIMPLE IRA or SEP IRA because they’re easy to set up and require minimal administration. For companies in their early stages, these plans can seem like the simplest way to offer a retirement benefit. But as your business grows—and as your employees’ expectations evolve—these plans often start to feel limiting. Lower contribution flexibility, lack of plan customization, limited Roth options, and no ability to add vesting schedules all lead employers to the same realization: it may be time to upgrade to a 401(k).
Transitioning from a SIMPLE or SEP to a 401(k) is a natural progression for growing businesses, and the shift can unlock major benefits for both owners and employees. One of the biggest advantages is increased contribution limits. SIMPLE IRAs cap employee deferrals at a level significantly lower than 401(k) limits, which restricts savings potential—especially for key employees or owners who want to maximize their retirement contributions. A 401(k) not only raises the ceiling but also allows employer matches, profit-sharing contributions, and catch-up contributions, giving you far more control over plan design and tax strategy.
Another area where 401(k) plans stand out is flexibility. With a SIMPLE or SEP, employers have very few levers to pull in terms of plan structure. A 401(k), on the other hand, allows you to customize eligibility rules, matching formulas, vesting schedules, and automatic enrollment features. These options make it easier to align your retirement plan with your company culture and retention goals. For example, introducing a three-year vesting schedule for employer contributions can encourage employees to stay longer, reducing turnover and strengthening team stability.
The transition process itself is more straightforward than most employers expect, but it does require proper timing. SIMPLE IRAs must remain active through the end of the calendar year, meaning you can only switch to a 401(k) at the start of a new year. SEP IRAs offer more flexibility, as they can be terminated at any point once contributions for the tax year are complete. The key is planning ahead so that contributions, payroll, and employee communication align smoothly. When executed properly, employees move seamlessly into the new plan without losing access to savings or experiencing administrative disruptions.
Communication is critical during this process. Employees need to understand why the transition is happening, how their contributions will be affected, and what new options they’ll gain through the 401(k). Most workers will welcome the change once they see the benefits—higher contribution limits, more investment choices, Roth options, and a modern digital experience. Clear, proactive communication ensures they feel supported rather than confused.
Joining a Pooled Employer Plan (PEP) can make the transition even easier. A PEP centralizes administration, compliance, and investment oversight under a single provider. This means that instead of navigating the complexities of plan setup, document execution, and fiduciary responsibilities on your own, you have a professional team overseeing every detail. The Pooled Plan Provider handles the technical work, manages the timeline, and ensures the transition meets all IRS and Department of Labor requirements.
At Apex Wealth Path, we guide employers through every step of the conversion—from designing the new plan, to coordinating with payroll, to assisting employees with rollovers. Our PEP structure eliminates the operational burden and gives businesses access to lower fees, stronger compliance protection, and a more sophisticated plan design. With the right partner, upgrading from a SIMPLE or SEP IRA to a 401(k) isn’t a heavy lift—it’s a strategic move that opens the door to greater flexibility, stronger retention, and far better long-term savings outcomes for your entire team.
Stephen Bellosi, AIF®, AWMA®
Managing Partner, Apex Consulting