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SIMPLE 401(k) Plans for Small Businesses
A SIMPLE 401(k) plan combines the features of a SIMPLE IRA and a traditional 401(k). It offers the benefits of both plans while remaining simple and cost-effective for small business owners.
Why Choose a SIMPLE 401(k)?
No annual nondiscrimination testing: Unlike traditional 401(k)s, SIMPLE 401(k)s do not require costly yearly testing, saving small businesses time and money.
Employee contributions: Employees can elect to contribute a portion of their salary to their retirement account.
Employer contributions: Employers must contribute each year using one of the following methods:
Matching contribution: Up to 3% of each employee's pay
Nonelective contribution: 2% of each eligible employee's pay, regardless of whether the employee contributes
Important note: The match cannot be reduced below 3%, unlike SIMPLE IRAs.
2024 SECURE 2.0 Updates
Employers with 25 or fewer employees may increase the annual deferral limit and catch-up contributions by 10%.
Employers can convert from a SIMPLE IRA to a SIMPLE 401(k) mid-year, effective for plan years starting on or after January 1, 2024.
Vesting, Withdrawals & Loans
Immediate vesting: Employees are 100% vested in both their contributions and the employer contributions.
Withdrawals: Funds can be withdrawn at any time. Early withdrawals before age 59½ may be subject to taxes and a 10% penalty, unless an exception applies.
Participant loans: Loans are allowed in SIMPLE 401(k) plans and traditional 401(k)s, but not in IRAs.
Employer Requirements
To offer a SIMPLE 401(k), a business must:
Have 100 or fewer employees
Cannot maintain any other retirement plans
Must file Form 5500 annually
How to Set Up a SIMPLE 401(k)
Any business that meets the 100-employee limit and does not maintain another qualified retirement plan can establish a SIMPLE 401(k).
Employees can make salary reduction contributions up to the limits listed above, and employers are required to contribute according to the chosen formula.
Why Choose Z Tax & Accounting
At Z Tax & Accounting, we specialize in helping small business owners nationwide establish and manage SIMPLE 401(k) and SEP-IRA plans.
Our team handles:
Plan setup and compliance
Employer contribution strategies
IRS and DOL filing requirements
Employee eligibility and communication
Tax reporting and year-end documentation
We make the process simple, efficient, and fully compliant — so you can focus on growing your business while building financial security for yourself and your employees. Contact us today !
Ending a SIMPLE Plan:
A SIMPLE retirement plan must run for the full calendar year (January to December).
Employers cannot end or pause the plan in the middle of the year, and employers must continue matching employee contributions through the end of the year.
This rule applies even if your business follows a fiscal year instead of the calendar year.
The only exception is the first year the plan is started.
How to End a SIMPLE Plan:
Employers can only end the plan at the end of the year.
To do this, Employer must give written notice to all employees before November 2 of that year.
Employers do not need to inform the IRS, but you must inform your employees in writing that the plan will be terminated.
We make the process simple, efficient, and fully compliant — so you can focus on growing your business while building financial security for yourself and your employees. Contact us today !
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