SIMPLE IRA (Savings Incentive Match Plan for Employees)

  • Provides an inexpensive 401(k) alternative to businesses with 100 or fewer employees.
  • Employees make pre-tax, salary deferral contributions into IRAs, which are owned and controlled by each employee.
  • Investment flexibility of a brokerage account
  • Employer must elect annually to make a required contribution in one of two ways:
    • Employer match of employee's salary deferral contribution dollar-for-dollar up to 3% of compensation, or
    • Employer contribution of 2% of each eligible employee's compensation

401(k) Plan

  • A 401(k) Plan is a profit sharing plan that allows employees to make a pre-tax salary deferral contribution.
  • In addition, the employer may make discretionary contributions in the form of a match or profit sharing contribution.
  • Typically, contributions are not mandatory (unless plan is Top Heavy or a Safe Harbor Plan).

Safe Harbor 401(k) plan may be beneficial for a company that fails discrimination tests and is limiting or refunding salary deferrals to Highly Compensated Employees (HCEs). This plan requires a mandatory employer contribution which is fully vested immediately.

Individual 401(k)

  • 401(k) plans are now a viable alternative for any owner-only business (or owner and their spouse, or partnerships).
  • An Individual 401(k) plan may allow business owners greater contribution levels when compared to a SEP IRA or Profit Sharing Plan.
  • This plan is not designed for businesses with employees or businesses planning on hiring employees.
  • Since there are no employee participants, the plan's administrative costs are relatively low compared to traditional 401(k) plans.

For a plan comparison chart, click here.