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SIMPLE 401(k) Plan

A new subset of the 401(k) plan is the SIMPLE 401(k) Plan.  Just like the SIMPLE IRA plan, this is a plan just for you: the small business owner with 100 or fewer employees.  However, just as with the SIMPLE IRA plan, there is a two-year grace period for growing businesses.

Under a SIMPLE 401(k) Plan, an employee can elect to defer some compensation.  But unlike a regular 401(k) plan, you the employer must make either:

  1. A matching contribution up to 3% of each employee’s pay, or
  2. A non-elective contribution of 2% of each eligible employee’s pay.

No other contributions can be made.  The employees are totally vested in any and all contributions.

If you establish a SIMPLE 401(k) Plan, you:

  • Must have 100 or fewer employers.
  • Cannot have any other retirement plans.
  • Need to annually file a Form 5500.

The IRS has issued Model Amendments for SIMPLE 401(k) Plans.  These Model Amendments permit a 401(k) plan to become a SIMPLE 401(k) Plan (if the other requirements are met).

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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 updated on Thursday, December 18, 2008 11:11 AM

 
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