Post On: October 15, 2019
If you have a growing business with a SIMPLE IRA retirement plan, it may be time to “graduate” to a 401(k) plan. In an era dominated by big, expensive company 401(k) plans, the Small Business Job Protection Act of 1996 introduced a new type of retirement plan for small businesses called the SIMPLE IRA. The legislation allowed the owners of small businesses (those with less than 100 employees) to establish a retirement plan for their employees without having to file an annual statement with the IRS. Many years have passed since the introduction of the SIMPLE IRA, and, in that time, the costs associated with 401(k)s have decreased substantially. What hasn’t changed, though, is that employers with SIMPLE plans have limited flexibility when compared to 401(k) plans. For example, employers have mandatory contribution options, which must be one of the following: 3% dollar-for-dollar match or 2% non-elective. The employee contribution levels are also lower: $13,000 (or $16,000 if age 50 or older) for a SIMPLE versus $19,000 (or $25,000 if age 50 or older) in a 401(k). Regular 401(k)s also have the following advantages over a SIMPLE IRA:
Tax law does not allow a business to have another retirement plan in the same year that it has a SIMPLE IRA retirement plan. So, if you think that it might be time to upgrade to a 401(k) plan for your business, now is the time to consult with Ambassador Advisors’ retirement plan professionals to decide if it makes sense to make the transition on January 1, 2020.
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