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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 reviewed and/or updated on Friday, August 13, 2010 10:46 AM

 
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