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SIMPLE IRA |
401(k) |
Individual 401(k) |
| Eligibility |
Typically used by businesses, with fewer than 100 eligible employees, that currently do not maintain another retirement plan. |
Typically used by public or private companies with 25 or more employees. |
Typically used by independent business owners and businesses with employees who can be excluded under federal laws governing plan coverage requirements. Employees may only include the owner’s spouse or direct descendants. |
| Plan Advantages |
A pre-tax salary reduction plan that doesn’t require elaborate administration |
Loans, matching contributions, vesting schedules |
Allows independent business owners to save more |
| Funding Responsibility |
Funded with employee contributions (salary reductions) and employer matching contributions |
Funded with employee contributions (salary reduction) and optional employer contributions |
Funded with employee contributions (salary reduction) and optional employer contributions |
| Annual Contributions |
Employee
Up to 100% of compensation, maximum of $7,000 for the 2002 plan year.1
Employer
Either match employee contributions dollar for dollar up to 3% of compensation (Maximum $7,000 for the 2002 plan year. This amount can be reduced to 1% in any 2 of 5 yrs.)
Or
Contribute 2% of each eligible employee's compensation, up to $4,000 for 2002. 2
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Employee
Determined by plan design -- up to 100% of compensation, with a maximum contribution of $11,000 in 2002.
Employer/employee combined
Up to 100% of compensation, with a maximum of $40,000 for the 2002 plan year.
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Employer/employee
For 2002, the maximum contribution to an Individual 401(k) plan, on behalf of any one business owner, is $40,000 for owners under age 50 and $41,000 for business owners age 50 or older. 3
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| Tapping the Assets |
Withdrawals may be taken at any time. If the employee is under age 59 1/2, and a withdrawal is taken within the first two years of participation, it may be subject to a 25% penalty tax. If the withdrawal occurs after two years, a 10% penalty may be assessed. |
Withdrawals may be taken whenever a "triggering event" occurs. The plan may offer loan provisions or allow withdrawals in certain hardship situations. (Hardship withdrawals may be subject to a 10% penalty if the participant is under age 59 1/2.) |
Withdrawals may be taken when a "triggering event" occurs. The plan may offer loan provisions or allow withdrawals in certain hardship situations. (Hardship withdrawals may be subject to a 10% penalty if the participant is under age 59 1/2.) |
| Vesting of Contributions |
Immediately vested |
Employee contribution vests immediately. The employer chooses vesting schedule for employer contributions. |
Immediate vesting |
| Administration |
No employer tax filings |
Form 5500 and special IRS testing required to ensure plan does not discriminate in favor of highly compensated employees |
Form 5500 not required until the assets in the plan exceed $100,000 or a non-owner employee qualifies for the plan. |
