If your employer switches from a Savings Incentive Match Plan for Employees Individual Retirement Account (SIMPLE IRA) to a 401(k) mid-year, your contribution limit for that year is prorated. This article explains how the standard limits work, how to calculate your prorated limit, and where to find it in your dashboard.
If your employer switches retirement plans from a SIMPLE IRA to a 401(k), you get the benefit of a higher contribution limit going forward. However, during the year of the transition, your contribution limit is prorated to account for the lower limit typically allowed under SIMPLE IRA plans.
Before calculating your prorated limit, it helps to know the standard annual limits for each plan type.
401(k) plans (2026)
Employee contribution limit: $24,500 (or 100% of your compensation, whichever is less).
Catch-up contributions (age 50 or older by year-end): an additional $8,000 – $11,250, depending on your age.
SIMPLE IRA plans (2026)
Businesses with more than 25 employees in 2025: $17,000 limit, plus $4,000 in catch-up contributions.
Businesses with 25 or fewer employees in 2025 (or that adopted one of the more generous employer contribution formulas allowed by SECURE 2.0 in 2024): $18,100 limit, plus $3,850 in catch-up contributions.
The prorated limit only applies during the year your employer transitions from the SIMPLE IRA to the 401(k). The standard 401(k) deferral limit applies in all subsequent years.
Your prorated limit is the sum of two calculations, minus the amount you have already contributed to the SIMPLE IRA. To calculate your prorated 401(k) limit, follow these steps.
Calculate the prorated SIMPLE IRA limit. Multiply the 2026 SIMPLE IRA deferral limit (including catch-up contributions, if applicable) by the number of days the SIMPLE IRA was in effect during the year, divided by 365.
Calculate the prorated 401(k) limit. Multiply the 2026 401(k) deferral limit (including catch-up contributions, if applicable) by the number of days the 401(k) was in effect during the year, divided by 365.
Add the two prorated amounts together.
Subtract the total deferrals you already made to the SIMPLE IRA during the transition year. The result is the maximum you can contribute to the 401(k) for the remainder of the year.
Adric’s employer replaced their SIMPLE IRA with a safe harbor 401(k), effective Oct. 1, 2026. Adric contributed $10,000 to the SIMPLE IRA before the transition. The SIMPLE IRA limit in effect for the plan was $17,000 (the business had more than 25 employees during the prior year). Adric is not old enough for catch-up contributions.
Here is how Adric’s limit breaks down:
Prorated SIMPLE IRA limit: $17,000 × (274 ÷ 365) = $12,761.64
Prorated 401(k) limit: $24,500 × (92 ÷ 365) = $6,175.34
Combined prorated limit: $12,761.64 + $6,175.34 = $18,936.98
Minus SIMPLE IRA deferrals already made: $18,936.98 − $10,000 = $8,936.98
Adric can contribute up to $8,936.98 to the new 401(k) for the remainder of 2026.
Important: Any deferrals contributed during 2026 — whether to the SIMPLE IRA or the 401(k) — that exceed the combined prorated limit must be refunded as a corrective distribution.
Note: If a participant did not defer into the SIMPLE IRA at all, they would still be eligible to defer up to the full combined prorated amount into the 401(k).
If your SIMPLE IRA was recently terminated and a Gusto 401(k) was established to replace it, you can find more information about your prorated deferral limit in the supplemental safe harbor notice you got by email.
A copy of this notice is also available in the Documents > Resource Library of your retirement dashboard under the Notices and Disclosures folder.