The IRS permits you to make selections in design including: employee deferral amounts, employer contributions, eligibility, vesting, and loans. A traditional 401k and SIMPLE both permit pre-tax employee and employer contributions and tax-deferred earnings; however there are specific features that differentiate each. Our team will detail plan elements to help you with the best fit before implementation.
|Traditional 401k||Safe Harbor 401k||SIMPLE|
|Maximum Business Size||No limit||No limit||100 employees|
|Individual Contribution Limit||$19,500 in 2020||$19,500 in 2020||$13,500 in 2020|
|Catch-up Contributions||$6,500 in 2020||$6,500 in 2020||$3,000 in 2020|
|Discrimination Testing (ADP)||Yes||No||No|
|Mandatory Employer Contribution||No||Yes, 4% match or 3% for all employees||Yes, 1% to 3% of salary for match or 2% for all employees|
|Hardship Withdrawals||Yes||Yes||Yes, Special Purpose Distributions|
|Vesting||Up to 6 years for match, up to 7 years for Profit Sharing||Immediate for required match or non-elective||Immediate|
|Eligibility Max||1 year, age 21, 1,000 hours max||1 year, age 21, 1,000 hours max||Employees earning $5,000 in any preceding 2 years & expected to earn $5,000 in current|
|Rollovers To/From Other Retirement Accounts||Yes||Yes||To: only from another SIMPLE IRA
From: after 2 years to avoid penalty
|Flexible Employer Contributions up to 25% of Pay||Yes, not to exceed |
$57,000 in 2020
|Yes, not to exceed |
$57,000 in 2020
|Flexibility To Favor Owners/Officers||Yes||Yes||No|
|IRS Tax Form 5500||Yes||Yes||No|
|Establishment Deadline||By the last day of the plan year||Any date between January 1 and October 1||Any date between January 1 and October 1; up to year end for a new business|
Highly Compensated Employees, those whose salary is above $125,000 in 2019, are subject to an additional contribution limit under a Traditional 401k. This limit is calculated via the average deferral percentage (ADP) testing.
Source of chart data: IRS.gov.