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What Type of Retirement Plan Should My Business Implement?  – Part 3 


In Part 2, we discussed that 401(k) plans are a good retirement plan to consider when trying to attract and retain top talent for your business.

But what are your 401(k) plan options? There are actually quite a few and we provide practical pointers to help you understand why a business might choose one plan over the other.

401(k) – This is the most common retirement plan offered today. 401(k) plans allow employees and owners to defer up to $23,000 of their compensation on a pre-tax or after-tax basis. After-tax deferrals are called Roth deferrals and have special tax treatment. The 401(k) plan does not require EMPLOYER CONTRIBUTIONS.

SIMPLE IRA* – This plan is technically not a 401(k) plan, but it is similar in that it allows employees to defer from their compensation on a pre-tax or after-tax basis, but only up to $16,000 ($7,000 less than the 401(k) plan). It is typically used when a business wants to keep administrative costs low and is willing to make a REQUIRED EMPLOYER CONTRIBUTION.

SIMPLE 401(k)* – This plan provides almost identical benefit options as the SIMPLE IRA, but with added administrative requirements. Since there are typically no upsides to this option & only additional administrative burden, this type of plan is rarely used.

SAFE HARBOR 401(k) – This plan is the same as the 401(k) plan first mentioned above, but the business commits to making a SAFE HARBOR EMPLOYER CONTRIBUTION. Why does a business choose this option? Because without it, certain highly-paid individuals may have a portion of their 401(k) deferrals returned if other employees aren’t saving enough.


Plan TypeMaximum DeferralAdditional Deferral if at Least Age 50 Required Employer ContributionsPlan Document RequiredGovernment Form 5500 Filing Required
SIMPLE IRA$16,000 * $3,500 *YESCan use IRS FormsNO
SIMPLE 401(k)$16,000 * $3,500 *YESYESYES
SAFE HARBOR 401(k)$23,000$7,500YESYESYES

*Deferral limits are increased by 10% if employer has 25 or fewer employees, or elects to make an additional 1% required contribution.

By clicking on the “Plan Type” above, you can gather more details on the unique characteristics of each plan.  Once you have a general understanding, it is always best to work with a Third-Party Administrator (TPA)  who can provide “real-life” advice based on your unique circumstances.

*Cannot use this type of plan if employer has more than 100 employees who earned at least $5,000.

Go to the Part #4 post in this series.

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