Simple Plans

[Jilliandiz]

What are the main differences between Simple 401(k) Plans and Simple IRA Plans?

Can someone advise, as it seems there are NOT many differences.

1. Currently have a 401(k) plan.

2. Want to switch to a Simple 401(k) or Simple IRA.

3. Can you rollover your current 401(k) into a Simple 401(k) or Simple IRA?

4. Are the distribution requirements different.

5. Filing of 5500?

6. When can you begin a Simple Plan if you currently have a 401(k) plan.

Any thoughts would be appreciated. I have read about both the Simple 401(k) and Simple IRA Plans and I just want to make sure I have everything covered before I give a client some advise.

Thanks

[Tom Poje]

I suppose the easiest way to compare the two is simply eliminate the word SIMPLE. One is still basically an IRA (e.g. no 5500) and the other is still a qualified plan, with most of the bells and whistles - 5500 filing, loans permitted, coverage testing, etc.

you can convert the 401k to a SIMPLE 401k with a model amendment, and if you get tired of the SIMPLE 401k you can switch back. can you convert in the middle of the year? not with the model amendment, and maybe if you are amending the plan. it is unclear from the regs.

I suppose if they go SIMPLE IRA it almost elimnates the need for an administrator.

I will assume you are talking a calendar year plan since that is a requirement.

[Jilliandiz]

But doesn't both allow for employee contributions?

[SoCalActuary]

Simples have lower limits, required match or low non-elective contribution, but no testing. 401(k) has larger catchup contributions and deferral limits, as well as other qualified plan features already mentioned.

SIMPLEs are funded with either IRA's that have an independent trustee, or as 401(k) SIMPLEs, which use a qualified plan trustee. Thus a business owner can trustee a 401(k) but not an IRA, although I believe there are restrictions on trustees of 401(k) SIMPLEs.

[Earl]

I don't work on SIMPLEs but isn't it true that the comp limit doesn't apply to SIMPLE IRAs? (so the ER contrib. can be more dollars...)

[wmyer]

For purposes of the SIMPLE IRA matching contribution, the compensation limit does not apply; however, it does apply to the SIMPLE IRA nonelective contribution.

The compensation limit applies for purposes of the SIMPLE 401(k) matching and nonelective contributions.

[Guest Bob K]

One of the advantages of a SIMPLE IRA is the abilility to lower the required matching formula (dollar for dollar on the first 3%) in 2 out of every 5 years.

This flexibility is not available in the SIMPLE 401(k)