401(K) vs. SIMPLE IRA & SIMPLE 401(K)-Which is more efficient for your small business?

401(K) vs. SIMPLE IRA & SIMPLE 401(K)-Which is more efficient for your small business?

By Congruent Solutions

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Congruent Solutions

Many small businesses often embrace SIMPLE 401(k) and SIMPLE IRA plans. They are an appealing choice for small businesses intending to offer a retirement plan without all of the 401k plan compliance testing and reporting requirements typically found in retirement plans because they are inexpensive, simple to set up, and sustain.

Let’s learn about SIMPLE 401 (K), SIMPLE IRA, and 401 (K) and which is efficient for your business.

SIMPLE 401(k) : A SIMPLE 401(k) plan is comparable to a standard 401(k), but there are some differences.

Employee deferrals are made on a pre-tax basis, just like in a regular 401(k), and are only taxed when a distribution is paid. Contributions from employers are also essential. A matching payment of up to three percent of the employee's salary or a nonelective contribution of two percent, dependent on the employee's salary, must be made by the employer. To join, participants must be at least 21 years old and have completed one year of service. Employees who are qualified for the SIMPLE 401(k) plan may not be offered any other retirement plan by the company.

SIMPLE IRAs : A SIMPLE IRA is an additional retirement plan choice for small firms with less than 100 employees that is similar to a SIMPLE 401(k). Each employee has a personal retirement account set up for them where they can contribute and have the business match their contributions.

Additionally, apart from a SIMPLE 401k, a SIMPLE IRA does not allow loans (k). In a SIMPLE IRA, there is a 10% early withdrawal penalty that can escalate to 25% if the money is taken out during the first two years.

401(k) : Traditional 401(k) plans are qualified retirement plans that employers provide to their staff. All kinds of organizations, small and large, can use it. Pre-tax salary deferrals made by the employees, which may or may not include employer matching contributions, go toward their plan contributions. In a traditional 401(k) plan, employers have more control over the kinds of matching contributions that members can use.

© 2020-2021 All Rights Reserved, No part of this document should be modified / used without prior consent.

Congruent Solutions

Want to know which is right for your business?

Finding a retirement plan that works for your business is crucial when making your decision. In light of the fact that SIMPLE plans are intended for companies with under 100 employees, it's crucial to review your company's retirement plan options as it expands. The advantages of SIMPLE 401(k)s and SIMPLE IRAs include lower expenses, the absence of nondiscrimination testing, and fewer regulatory obligations. Traditional 401(k) plans are relatively flexible and dynamic, offering a wide range of options for eligibility, contributing, automatic enrollment, loans, and vesting.

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© 2020-2021 All Rights Reserved, No part of this document should be modified / used without prior consent.

Congruent Solutions