Choosing between a Simple 401(k) and a Simple IRA, by Steve Blount

It is common for small-business employers with fewer than 100 employees to establish a Simple IRA plan as a benefit to staff and the company. What is less common is opting instead for a Simple 401(k) plan, which has certain areas of greater flexibility for the employer.

For example, with a Simple IRA plan, employers are not allowed to maintain additional plans for personnel who do not qualify for the plan, whereas a second plan is admissible in the case of a Simple 401(k). However, employees of companies that adopt a Simple 401(k) plan must work for the company for at least one year and be at least 21 years of age, whereas this is not the case with Simple IRAs.

Another difference between the two plans is that loans can be made from Simple 401(k) plans for those employees who feel the need to access funds at some point prior to retirement age. Both plans offer 100% vesting of contributions, which adds a level of security to the employee, and employers can make matching contributions if they so choose.

About the Author: Steve Blount is an independent financial consultant with over 25 years experience in retirement planning and wealth management. His firm, Professional Retirement Consultants, LLC., is located in Lake Charles, Louisiana.

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