SIMPLE 401k Plan

Overview

 

The Simple 401(k) plan is an ideal investing option for the retirees as it offers long term benefits. It helps retirees, employees and the aged to stay secure and have a good financial portfolio. More and more Americans are opting for the Simple 401(k)  to be financially stable in their post retirement period.

 

SIMPLE 401k – Advantages

Understood from its name, the Simple 401 (k) has a very simple procedure. Unlike the other plans, it does not consist of so much paper works, terms and conditions. It is a typically employer sponsored and is very popular because of the easy and convenient procedures.

The employers who make the plan can really benefit from the contributions that are entitled to the tax deductions. In case of the employees, they can easily opt for the deferrals of the salary for contributing to the plans. By being covered under this plan, the employer can match some part of the employee deferrals or make non elective contributions to the eligible employees.

In simple terms, the Simple 401(k) is a mixture between the Simple IRA and traditional 401(k) plan as it has similar features of both the plans. Unlike the other 401 (k) plans, no non-discrimination tests are needed in case of the Simple 401 (k) plans. This makes the plan really ideal for small businessmen or small owners. This type of plans also has very low administration costs.

If you are covered under this plan, you can also enjoy loans. Some amount of the loans is also exempted from taxes. You can borrow your own funds from the account and pay the interest back into the account. This is a great feature that is available.

However, compared to the other 401(k) plans, the contribution limits are lower in this plan. The limits cannot be more than $11,500 compared to $16,500 of the traditional 401(k) plan.

 

Eligibility

Small owners like sole entrepreneurs, partnerships and small corporations can opt for the Simple 401(K) account. In order to be covered under the plan, the employees need to be at least 21 years of age and must have completed at least one year of service. The employer is required to provide a notice of deferral to the employees after the plan is made for the employees for that particular year. Usually, the notice is provided at least 2 months prior to the date when the employee is eligible for the plan. In the notice, one should provide a statement of the rights of the employee to make salary deferral contributions and also stop the plan if the employee decides to.

The employer should as well provide the employees with relevant information and useful details about the various features of the plans and the benefits that they can enjoy from it.

 

When to apply for Simple 401k ?

Usually, the Simple 401(k) plan needs to be established in the period between January 1 and October 1. However, there is an exception for the businesses which have been established after October 1.