Small business owners who prefer SIMPLE Retirement Plans often want to know the similarities and differences between a savings incentive match plan for employees of small employers(SIMPLE) IRA plan and a SIMPLE 401(k) Plan. This Appleby Quick Reference Guide provides a comparison of some of the key features and benefits of these plans.
Feature/ Benefit | SIMPLE IRA | SIMPLE 401(k) |
Eligible Employer | Any employer, providing the employer had no more than 100 employees with $5,000 or more in compensation during the preceding year. Generally, the SIMPLE IRA must be the only plan maintained by the employer | Any employer, providing the employer had no more than 100 employees with $5,000 or more in compensation during the preceding year. |
Age Requirement | N/A | Can exclude employees under age 21 |
Service and compensation requirement | Must include employees who received at least $5,000 in compensation during any 2 preceding calendar years (whether or not consecutive) and are reasonably expected to receive at least $5,000 in compensation during the calendar year | Must include employees who have performed at least one year of service. A year of service can be defined as up to 1,000 hours of service during a 12-month period. Employees eligible under the SIMPLE 401(k) plan may not participate in any other of the employer’s plan |
Salary deferral allowed | Yes. Up to $11,500 + catch-up of $2,500 | Yes. Up to $11,500 + catch-up of $2,500 |
Maximum contributions allowed for employee | $11,500 deferral + employer match of 3% of compensation+ catch-up | $11,500 deferral + employer match of 3% of compensation+ catch-up |
Deductible limit | Up to the SIMPLE IRA contribution amounts. NTE allowed contribution | Up to the SIMPLE 401(k)’s contribution amounts. NTE allowed contribution |
Limitation on Compensation | Compensation cap of $250,000 applies only to employer 2% non-elective contribution | Compensation cap of $250,000 applies |
Vesting of Contributions | 100% immediate vesting | 100% immediate vesting |
Deadline to Establish Plan | October 1. Except for businesses that are created after October 1, for which the plan must be established as soon as administratively feasible | October 1. Except for businesses that are created after October 1, for which the plan must be established as soon as administratively feasible. Special rules apply. See Sec. 1.401(k)-4 |
Deadline for making/ depositing contributions ( see end notes for salary deferral contributions) | Salary deferrals- as soon as contributions can reasonably be segregated from the employer's general assets .[i] Employer contributions –employer’s tax filing deadline, including extensions | Salary deferrals- as soon as such contributions can reasonably be segregated from the employer's general assets !!
|
iscrimination testing | N/A | N/A |
5500 filing | N/A | Yes |
Complexity | Low | Low |
Administrative cost | Low | Low |
Notable notes | Employers often overlook the annual notification requirements that applies to SIMPLEs, resulting in them being subject to penalties | These have not been popular, as employers often choose either the SIMPLE IRA or the safe-harbor 401(k) instead, possibly because the desired features are usually in either of the two |
Ideally suited for … | Employers that are looking for a plan that is easy/ inexpensive to administer, has a mandatory feature for employer contributions, allows employees to share the cost of funding their accounts, contributions are immediately 100% vested ,and does not mind the fact that employees can take their contributions at anytime | Employers that are looking for a plan that is easy/ inexpensive to administer, has a mandatory feature for employer contributions, allows employees to share the cost of funding their accounts, and does not mind the fact that employer contributions are 100% immediately vested, though employees must wait for a triggering event to take distributions |
[i] No later than 30 calendar days following the month to which the deferral applies. The 30-day period is the latest deadline, and applies only if the assets cannot be segregated sooner.
[i] No later than the 15th business day of the month, following the month to which the deferral applies. The 15th business day is the latest deadline, and applies only if the assets cannot be segregated sooner. Plans with fewer than 100 participants as of the beginning of the plan year, may remit salary deferrals within 7 business days after the date the amount is received or withheld.
Disclaimer:
This chart provides a high level comparison of the features and benefits of the plans that are included. More detailed information is required in order to obtain a complete understanding of the features and benefits of a particular retirement plan.
This chart is not meant to be used as tax, legal or retirement planning advice.
Individual business owners must seek independent consultation with a professional, who is knowledgeable and demonstrates competence in the area of the operations and compliance requirements of employer-plans.
Comments welcome. Please send comments to CustomerService@Applebyconsultinginc.com
(C) www.applebyconsultinginc.com
