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Simple 401(k) (basics)


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I understand Simple IRA plans.  Setup is an IRS form 5304 or 5305 depending on where the money is invested.  Contributions are put in an IRA in the participant's name.  I don't handle them.

So what is a Simple 401(k)?  Basically a 401(k) with only a 3% match or a 2% NEC? 

  • For setup I see on the ftWilliam system there is a toggle to designate the 401(k) as a Simple
  • A 5500 is required.  A 5500-SF?  Same filing deadline?
  • You have to pull together all the financial info to prepare the 5500, Is an annual report prepared, participant statements?

Is it really just a "vanilla" as it can get 401(k) with Simple IRA eligibility requirements, no testing, no PS contribution?  

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Really, huh.  and I see there are some likes and even a chuckle. 

I am by no means pushing this product, I was asked and so I looked into it and am inquiring.  The FA says this would be for a business with 3 partners.

I read, Simple IRAs do not allow ROTH deferrals.  True?   I'm guessing because the match or nec is pre-tax. 

For a Simple 401(k), the contributions are not deposited into IRAs but rather an investment account.  If that is the case, can a Simple 401(k) have 2 accounts for each participant, one for ROTH deferrals and one for the employer contribution?

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On 11/9/2022 at 11:27 AM, Basically said:

Really, huh.  and I see there are some likes and even a chuckle. 

I am by no means pushing this product, I was asked and so I looked into it and am inquiring.  The FA says this would be for a business with 3 partners.

I read, Simple IRAs do not allow ROTH deferrals.  True?   I'm guessing because the match or nec is pre-tax. 

For a Simple 401(k), the contributions are not deposited into IRAs but rather an investment account.  If that is the case, can a Simple 401(k) have 2 accounts for each participant, one for ROTH deferrals and one for the employer contribution?

You might be hard-pressed to find a SIMPLE 401(k) plan document. It's the little plan that could, but (appears to) never did.
The question becomes, could another type of 41(k) provide the benefits that they want?

If this is three partners (no common-law employees), why not an SBOK/SoloK/Individualk?

You are right that SIMPLE IRAs do not allow for Roth deferrals.

And, yes, like any other 401(k) a SIMPLE 401(k) would permit two accounts, one for traditional assets and another for Roth if the plan permits designated Roth contributions.

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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I ended up convincing the FA that the SoloK would  be the best option.  At first he didn't feel comfortable.  I explained that the business with 3 partners could be a Solo and would be eligible to file an EZ.  I cut and pasted the EZ rules from the instructions and he came around.  

Thanks for chiming in!

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