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• Withdrawals: Funds can be withdrawn at any time.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.

Simplified Employee Pension (SEP-IRA) Plans          SIMPLE IRA Plans          SIMPLE 401(k) Plans          Defined Contribution Plans          Defined Benefit Plans