SIMPLE 401(k) Plans

Employers may set up SIMPLE 401(k) plans for their employees. The SIMPLE (which stands for "savings incentive match plan for employees") is an alternative to regular 401(k) plans. The SIMPLE plan is much easier to administer, but it has greater limitations.

The employee may defer up to $10,500 under a SIMPLE 401(k), compared to $15,500 under a regular 401(k). These numbers are for 2007 and 2008. Employees over 50 may make an additional "catch-up" contribution of $2,500, both for 2007 and 2008. Under a SIMPLE 401(k), the employer must match up to 3 percent of the employee elective deferrals. Alternatively, the employer may elect to make a 2 percent (non-matching) contribution (limited to $225,000 in 2007 and $230,000 in 2008) of compensation to all eligible employees, whether they defer salary or not.

The 401(k) is a very popular retirement plan because both employers and employees can contribute on a tax-deductible basis.

This article provided by The Educated Investor and powered by CalcXML.
© 2000-2008 Precision Information LLC. All rights reserved.
Click here to license this content.