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Individual Tax Return
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Employee's Withholding Allowance Certificate
Employer's Quarterly Federal Tax Return
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Rules Governing Practice before IRS

Choosing a Retirement Plan: SIMPLE 401(k) Plan

A subset of the 401(k) plan is the SIMPLE 401(k) plan. Just like the SIMPLE IRA plan, this is a plan just for you: the small business owner with 100 or fewer employees. However, just as with the SIMPLE IRA plan, there is a two-year grace period if you exceed 100 employees, to allow for growing businesses.

Under a SIMPLE 401(k) plan, an employee can elect to defer some compensation. But unlike a regular 401(k) plan, you the employer must make either:

  1. A matching contribution up to 3% of each employee’s pay, or
  2. A non-elective contribution of 2% of each eligible employee’s pay.

No other contributions can be made. The employees are totally vested in any and all contributions.

If you establish a SIMPLE 401(k) plan, you:

  • Must have 100 or fewer employers.
  • Cannot have any other retirement plans.
  • Need to annually file a Form 5500.

The IRS has issued Model Amendments for SIMPLE 401(k) plans. These Model Amendments permit a 401(k) plan to become a SIMPLE 401(k) plan (if the other requirements are met).

Pros and cons

  • Plan is not subject to the non-discrimination rules that apply to everyday 401(k) plans.
  • Employees are fully vested in all contributions.
  • Straightforward benefit formula allows for easy administration.
  • Optional participant loans and hardship withdrawals add flexibility for employees.
  • No other retirement plans can be maintained.
  • Withdrawal and loan flexibility adds administrative burden for the employer.

Who contributes

Employee salary deferrals and Employer contributions.

Contribution limits

Employee - $12,500 in 2015, 2016 and 2017. If the employee is age 50 and over, an additional “catch-up” contribution is allowed. The additional contribution amount is $3,000 in 2015, 2016 and 2017.

Employer - A dollar-for-dollar match up to 3% of pay or a 2% non-elective contribution for each eligible employee.

Filing requirements

Annual filing of Form 5500 is required.

Participant loans  

Loans are permitted.

In-service withdrawals

Yes, but subject to possible 10% penalty if under age 59-1/2.

Additional resources