SIMPLE 401Ks vs Traditional 401Ks

Should I Choose a Traditional 401K Instead of a SIMPLE 401K for my New Business? Jessie Prenatt, Godwin, North Carolina, runs a day care center at home. 

A SIMPLE 401K is a good choice for businesses that are really small. If you employ just a handful of people at your day care then this plan is a good option for you. In fact, businesses that employ less than 100 people can choose this plan. The paper work you will need to carry out for establishing this kind of 401K is much less and also simpler than the traditional 401K requires. As the employer setting up the SIMPLE 401K you will appreciate the lower fee that is usually charged by providers to set up this kind of retirement benefit plan.

As regards contributions, the SIMPLE 401K plan contributions you make on behalf of your employees should equal 3% of the participant employee’s salary. Another fact to know with SIMPLE 401K is that your contributions are immediately vested.

Your employees may not be able to contribute as much to the SIMPLE as they can to the traditional 401K. Considering that both take pre tax contributions, in effect, reducing the taxable salary the employees draw, this is an aspect that both you and your employees should give some thought to before choosing the SIMPLE 401K.

Understand how the 401K works and what its tax and other advantages are by looking at a few informative sites like before you decide on the plan you want for your business.

About Elliot Earl, Director, Pension Trade Association
Director, Pension Trade Association Founded in 1982, the Pension Trade Association [California Domestic Nonprofit Corporation #C1629080] is dedicated to helping workers save for their retirement through expanded coverage of 401k -type defined contribution pension plans.

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