Investment Solutions
Simple IRA vs 401(k) Plan Comparison Chart
| FEATURE | SIMPLE IRA | 401(k) Plan |
|---|---|---|
| Eligible Employer | Has 100 or fewer employees earning $5,000 or more in compensation during preceding year. | Any business. |
| Establishment Deadline | October 1 of current year. Can be later if business is established after October 1. | Last day of employer’s taxable year. |
| Eligible Employees | Receive $5,000 in compensation in any two preceding years and are expected to receive $5,000 in the current year are eligible. | 21 years old. Completion of one-year of service, 1000 hours service per year. |
| Contribution Limits for Employer | Employer must make matching contributions up to 3% of employee compensation or contribute 2% of total eligible employee compensation. Total employer contribution may not exceed $13,500 per year in 2021 | Employer’s discretion up to 25% of eligible payroll. Can be made as a matching or a profit-sharing contribution. Contributions may continue beyond age 701⁄2. |
| Contribution Limits for Employees | Employees can defer up to $13,500 per year, 2021 limit, or 100% of compensation, whichever is less. Employees who are 50 or older can defer an additional $3,000, contributing up to $16,500. | Employees can defer up to $19,500 per year (2021 limit). Total employee and employer contributions, per employee, cannot exceed $58,000 (2021) unless employee is age 50 or older then they may defer up to an additional $6,500. |
| Deductions & Deferrals | Employer and employee contributions deductible to employer. Employee contributions are pre-tax & tax deferred. | Employer and employee contributions deductible to employer. Employee contributions are pre-tax & tax deferred. Alternatively, and depending upon plan design, may be directed on an after-tax basis into a designated Roth 401(k) account. |
| Vesting | 100% Vested immediately | Several permissible vesting schedule. |
| Loan Provisions | None. | Yes. |
| Testing | No Testing. | Subject to ADP, ACP, and top-heavy testing. |
| Distributions | 10% premature distribution penalty may apply; penalty is increased to 25% during first 2 years. Must begin distributions at age 72 (or 70 1⁄2 if you reach 70 1⁄2 in 2020). In-service distributions allowed. | 10% premature distribution penalties may apply. Must begin distributions at age 72 (or 70 1⁄2 if you reach 701⁄2 in 2020) unless still employed. In-service distributions available if plan document allows. |
| Portability | Rollovers are permitted only after the two-year period has been met. | May be permitted per Plan provisions. |
