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.

Highlight the Best Features of 401K to Encourage Participation

I have a 401k plan for the employees of my small boutique. How do I gain enough interest in the plan so that they voluntarily make maximum contributions? – Mackenzie Callister, Phoenix.

Presenting your 401K in a good light is really easy because this retirement plan already comes with an array of attractive benefits for your employees. But, it is a fact that even today, many employees are not aware of exactly how useful this plan can be. Highlighting some of the main advantages that your staff stands to gain if they make contributions to their 401K will definitely encourage them to take voluntary interest in this plan. Here are a few ideas you can use.

In the current economic scenario, your employees are sure to be toeing a cautious line when it comes to investing their money. Many Americans had their entire savings wiped out during the recent recession, especially those who had invested in equity or real estate. Given that the primary objective of saving is to ensure financial independence during your retirement years, a safe avenue like 401k is ideal for retirement planning. Present your 401K plan as the simplest and most financially advantageous plan that your employees will ever use to make their retirement years financially secure.

The fact that they will not be paying taxes on the contributions they make to the 401K just makes this retirement plan even more attractive. Every contribution goes directly from the paycheck into the 401K before tax. This reduces their total taxable income, and consequently, reduces the tax that they need to pay.

Use a software suite like to give your employees the ability to manage and track their 401k easily and you will see more of them voluntarily choosing to make maximum contributions to this retirement savings plan.