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SIMPLE IRA vs. SIMPLE 401k

There Is A Difference!

Requirement

SIMPLE IRA

Non Qualified Plan

SIMPLE 401(k) PLAN

Qualified Plan

Eligible employers

100-employee rule (Section V, Part A)

Same

Document

Form 5305-SIMPLE or Form 5304-SIMPLE, prototype or individually-drafted (Section V, Part C)

Qualified plan document, Model amendment provided in Rev. Proc. 97-9

Eligible employees

$5,000 of compensation in 2 prior years, and expected to receive $5,000 in current year (Section V, Part D)

Qualified plan rules apply (e.g., 1 year/age 21) (Section VI, Part B)

Exclusive plan

Yes (Section V, Part B)

Same

Related employer rules

Apply

Same

Coverage testing

Not applicable

Applies (Section VI, Part B)

Elective contributions

Limited to $6,000 per calendar year; 60-day election period prior to beginning of year (but additional election periods permitted) (Section V, Part G)

Same

Matching contribution

Capped at 3% of compensation (may be reduced down to 1% cap in 2 of 5 years) (Section V, Part G)

Capped at 3%  (no reduction on cap allowed) (Section VI)

Nonelective contributions

2% of compensation (Section V, Part G)

Same

Nondiscrimination tests

Not applicable (Section V, Part H)

Same

Vesting

All contributions 100% vested (Section V, Part G)

Same

Top heavy rules

Not applicable (Section V, Part H)

Same

Section 415 limits

Not applicable (Section V, Part F)

Applicable (Section VI, Part B)

Compensation dollar limit

Only applies to nonelective contributions (Section V, Part G)

Applies to matching and nonelective contributions (Section VI, Part B)

Section 402(g) limit

Applies (Section V, Part G)

Same

Employer deduction

No 15% deduction limit (Section V, Part G)

Same (Section VI, Part B)

Form 5500 filing

No (Section V, Part H)

Yes (Section VI, Part B)

Trust accounting

Not applicable (Section V, Part H)

Required (Section VI, Part B)

Transmittal of elective contributions

Earlier of: 1) 30 days after close of month. or 2) earliest date employer able to segregate from its assets (Section V, Part F)

Earlier of: 1) 15th business day of the following month, or 2) earliest date able to segregate

Fiduciary responsibility

Limited, expires after no more than 1 year (Section V, Part F)

Normal ERISA rules apply

Withdrawals

Permitted anytime; 25% tax penalty applies if employee is under age 59-1/2 and withdrawal is in first 2 years (Section V, Part I)

Terms of plan control; selection 401(k) restrictions apply (Section VI, Part D); no 25% penalty

Minimum distributions

Must start by April 1 of year following calendar year in which age 70-1/2 attained (Section VI, Part B)

Must start by April 1 of year following later of: 1) calendar year age 70-1/2, or 2) calendar year retires, if employee is not 5% owner (Section VI, Part B). For a 5% owner, the rule is the same as for SIMPLE-IRAs

Rollovers

Only into another SIMPLE-IRA or other IRA (Section V, Part I)

Into qualified plan or IRA (other than SIMPLE-IRA) (Section VI, Part B)

Joint and survivor rules

Not applicable

Required unless exemption requirements under IRC 401(a)(11) are satisfied (Section VI, Part B)

Plan year

Must be calendar year (Section V, Part C)

Same

Participant loans

Not permitted

Permitted

For Professional Consultation Services Contact:
Executive Benefit Plans, Inc.
Suite 1188
1186 Route 56 East
Apollo, PA 15613-9725 USA

Phone: 800-622-2411 or Fax: 724-478-1688
E-mail -
info@benefitplans.com

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Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

This page was last reviewed and/or updated on Monday, October 21, 2013 09:58 AM

 

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