What is a simple 401k?

Answer 1

Just like the Simple IRA plan, Simple 401k's are plans designed for the small business owner with 100 or fewer employees. And, just as with the Simple IRA plan, there is a two-year grace period for budding businesses, if the business goes over the 100-employee limit.

Under Simple 401k's, employees can elect to defer some of their compensation. But unlike a standard 401k 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 all contributions, including those made by the employer to the employee's account.

If you establish a 401k-Simple, you:

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