| Design feature | Simple IRA | 401(k) | Safe Harbor 401(k) |
|---|---|---|---|
| Eligibility for plan | Employers with 100 or fewer employees | Any business can establish | Any business can establish |
| Eligibility for participation | Employees earning over $5,000 or more in two prior years and no other plan | Age 21 Completion of one year of service 1,000 hours service per year |
Age 21 Completion of one year of service 1,000 hours service per year |
| IRS Form 5500 required | No | Yes | Yes |
Contribution Limits – Employer |
Employer must make matching contributions up to 3% of employee compensation or contribution 2% of total eligible compensation | Employer has discretion on what to contribute up to 25% of eligible compensation Employer contributions not required |
Employer must make dollar-for-dollar matching contributions up to 3% of employee compensation and $.50 on the dollar for the next 2% of employee compensation or contribute 3% of total eligible employee compensation. Additional discretionary profit-sharing contributions are allowed. Employer contributions may not exceed 25% eligible compensation |
| Required Minimum ER Contribution | |||
| Matching option | Dollar for dollar match up to 3% | None | 4% of employee compensation |
Non-Elective Contribution |
2% of employees total eligible compensation* |
None |
3% of employees total eligible compensation |
| Profit-Sharing available | No | Yes, if plan allows | Yes, if plan allows |
| Contribution format | Can be made as a matching contribution or profit-sharing contribution | Can be made as a matching contribution and/or profit-sharing contribution | Can be made as a matching contribution and/or profit-sharing contribution |
$ Limits – Employee |
$12,500 per year for employee if under age 50 $15,500 per year for employee if over age 50 |
$18,000 annually if under age 50, subject to testing $24,000 per year if over age 50, subject to testing |
$18,000 annually if under age 50 $24,000 per year if over age 50 |
| Deadline for Employer contribution | Employer tax filing deadline, plus extensions | Employer tax filing deadline, plus extensions | Employer tax filing deadline, plus extensions |
| Retirement assets comingled | Not allowed | Plan level decision, but most plans allow for IRA, SIMPLE IRA, 403(b), 457(b) or other 401(k) balances to be comingled | Plan level decision, but most plans allow for IRA, SIMPLE IRA, 403(b), 457(b) or other 401(k) balances to be comingled |
| Vesting | 100% immediate in employer contributions | Plan may offer a vesting schedule with several options being available | 100% immediate on Safe Harbor contributions, with vesting schedule available on employer contributions above Safe Harbor |
| Loans** | Not available | Yes, if plan allows for loans | Yes, if plan allows for loans |
| Pre-tax or Roth (after tax) | Pre-tax only | Pre-tax or Roth if document allows | Pre-tax or Roth if document allows |
| Distributions*** | 10% premature distribution 10% increased to 25% during first two years In-service distributions allowed Must begin distributions by age 70 ½ Available at any time for any reason |
10% premature distribution In-service distributions available if plan allows Must begin distributions by age 70 ½ unless still employed, unless over 5% owner Available for hardships |
10% premature distribution In-service distributions available if plan allows Must begin distributions by age 70 ½ unless still employed, unless over 5% owner Available for hardships |
Retirement plans are designed to accumulate money on a tax-deferred basis for retirement purposes. Distributions may be subject to ordinary income tax and, if taken prior to age 59 ½, a 10% federal tax penalty may apply. Investing in a group variable annuity involves risk, including possible loss of principal.
Prior to selecting investment options for a plan, plan sponsors should consider the investment objectives, risks, fees and expenses of each option carefully. For this and other important information, plan sponsors should review the fee disclosure document or the plan sponsor website. Read this information carefully.
Although this chart is designed to provide accurate and authoritative information with respect to the subject matter being covered, it is expressly understood by the reader that the publisher is not engaged in rendering legal and/or accounting services or advice. If legal and/or accounting advice. If legal and/or accounting advice is required, the services of a competent attorney or accountant should be sought.
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