Quality retirement plan benefits can help your business recruit and retain top notch employees, but it can often be confusing when you’re shopping for the right plan. One of the most attractive plan options for small to mid-sized businesses is a SIMPLE 401(k).
A SIMPLE 401(k) plan or Savings Incentive Match Plan for Employees are some of the more cost-effective retirement plans offered to smaller businesses. These plans are typically held under less regulatory scrutiny than regular 401(k)s and are only permitted for businesses with 100 employees or less. Note: rules surrounding SIMPLE 401(k)’s prevent employers from offering other types of retirement-savings vehicles to their employees.
Taking advantage of employer contributions is a great incentive to help employees boost their retirement savings. SIMPLE 401(k)s offer safe harbor contributions, which requires employers to make fully-vested contributions, whether or not the employee contributes to the plan.
With SIMPLE 401(k) plans, employer contributions are limited to a dollar-for-dollar matching contribution up to 3 percent; or a non-elective contribution of 2 percent of pay for each eligible employee. No other employer contributions can be made to a SIMPLE 401(k) plan.
Like other 401(k) plans, the SIMPLE 401(k), the contribution is invested pre-tax. However, SIMPLE 401(k)’s contributions are immediately fully-vested, whereas traditional 401(k)s typically may not be fully vested until a later date.
Key differences between SIMPLE 401(k) and SIMPLE IRA
Both SIMPLE 401(k)s and SIMPLE IRAs are tax-deferred retirement savings accounts for employees of small businesses. Some of the key differences between the two plans are that SIMPLE IRAs have different match options for employers, while with SIMPLE IRAs, employers can elect to reduce contributions to 1 to 3 percent. SIMPLE 401(k)s allow participants to take loans, SIMPLE IRAs do not.
Maximum contributions
SIMPLE 401(k) contribution maximums contribution limits are significantly lower than the maximum amount allowed in other retirement-savings vehicles. In 2019, the maximum amount employees can contribute to a SIMPLE 401(k) is $12,000, while the annual limit of a traditional 401(k) is $19,000 in 2019.
Today, there are more quality benefit options than ever before. To learn more about SIMPLE 401k(s) or to carefully weigh all of your options to find the retirement plan that best fits your business’ needs, contact Rubin Wealth Advisors at info@rubinwa.com.