Overview of the simple
401k retirement plan
The new and
modified simple 401k plan is designed based on simple IRA plan and traditional
401k plan. The plan is not available for small businesses with less than 100
employees. The plan is available for employees of 21 years and older. Below is
the detailed overview of 301k plans with its features and benefits.
Benefits of
simple 401k plan:
No testing:
For the employees
that go with traditional 401k plan, they require to undergo many testing phase.
These tests range from medical, physical and mental health of employee. Different
testing are in compliance with traditional 401k plans regulations. While on the
other hand simple 401k plans have hardly any testing involved. Also the simple
401 k plan is quite beneficial for even small business owners who can hardly
undergo any of the testing have required in traditional plan. Also as there is
no testing involved in simple 401 k plan, the cost for administration is quite
less.
Loans allowed:
The major reason
why simple 401 k plans are also known as portable pension retirement plan is mainly because loans are allowed in this plan. It
is an attractive feature because most of the business owners like the idea that
the employee’s retirement plan is flexible. Moreover employees like it
beneficial as they can borrow their own funds when in need. The loan can be
easily repaid by employees with interest on funding own account.
Eligibility
criteria for employees:
In order for
specific employees to be eligible for the simple 401k plan, employees are
required to be serving an employer for minimum of 1 year term. The employee is
also required to be of age 21 or higher to be eligible for applying simple 401k
plan. The simple IRA plan is without any age restrictions. An employee who has
earned $5000 or more in the couple of preceding years and is expected to earn
$5000 or more is allowed to participate in the plan.
Notice
requirement:
It is the duty of
the employer to generate and provide a notice for each eligible employee every
year. The employers are required to provide a 60 day prior notice before a
specific employee is able to participate in simple 401k plan. The notification
is mainly to allow an employee to make any salary-deferral he/she would like to
make. It’s the duty of employer to inform its employees about the simple 401k retirement plan features and its benefits prior before the plan comes in effect for
a particular employee.
Deadline:
A simple 401k plan has establishment limit.
The plan can only be established from January 1 to October 1. An exception does
exist for new business that comes into effect after October 1. For such
business an exception is made to get the plan established as quickly as
possible on administrative scale.
Bottom line for
the simple 401k plan:
(Source: supplementalsocialsecurity.wordpress.com/)
