A SIMPLE Alternative to a 401k

There’s a retirement plan available to small business owners that few people are familiar with. It’s called a Savings Incentive Match Plan for Employees, or “SIMPLE” IRA.

What makes these plans so attractive usually boils down to one word: Cost

The more commonly used 401(k) plans typically have expensive annual testing requirements to ensure they remain in compliance with the rules of ERISA. A SIMPLE IRA plan, however, avoids these testing requirements, and therefore has very low administrative fees compared to a 401(k) plan, potentially saving the business owner thousands of dollars each year in fees. In fact, picking the right provider for your SIMPLE IRA plan can result in no on-going administrative fees for the employer.

As usual though, saving money comes with a compromise. Here’s a general overview of the features of a SIMPLE IRA that you’ll want to know:

1. Must have fewer than 100 employees

2. The employer is required to provide either:

a. 3% matching contribution, or

b. 2% contribution to all employees (regardless of participation)

3. All contributions are 100% vested

4. The contribution limits are lower in a SIMPLE IRA than in a 401(k) plan

5. Taking money out of a SIMPLE IRA plan within the first 2 years can result in penalties that are larger than 401(k) plans


Call us today if you are considering setting up a retirement plan for your small business.  We can help you determine which plan is right for you and your business.

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About the Author:

Tim Plachta, CFP® owns and operates Reliant Wealth Management and Reliant Consulting Partners.  He works primarily with small business owners to help them increase profit, reduce their workload (so they can relax more), and invest enough of their earnings to achieve financial independence.