Simple IRA or Simple 401K

[JON]

Two separate terms.. What are the differences in them?????

[Bees Knees]

Same contribution rules. The only difference is the SIMPLE IRA is an IRA account, meaning the participant controls the investments and can decide when to take distributions. A SIMPLE 401(k) is controlled by the employer, just like a regular 401(k). The funds must remain in the employer's control until the employee leaves the job, is disabled, retires, or dies.

[S T]

More? On Simple

Since the Simple IRA topic is here again, question.

If an employer with one employee sets up a SIMPLE IRA for the employee, is the employer (self employed) also obligated to participate in the plan, or can the employer opt out and still just fund his own Traditional IRA plan?

Thanks,
S

[Bees Knees]

It depends.

The employer has two choices with a SIMPLE IRA.

1) Allow all eligible employees to participate and match dollar for dollar employee elective deferrals up to 3% of wages for each employee who chooses to participate.

2) Allow all eligible employees to participate and contribute 2% of wages for each eligible employee, regardless of whether they choose to participate.

If option two is chosen, then every employee, including the employer is an active participant since everyone has employer contributions going into their account.

If option one is chosen, then only those employees who actually participate are considered active participants because the employer is only matching those who actually put money into their account.

But then, I don't know any reason the owner would choose not to participate since the SIMPLE elective deferrals are so much higher than IRA contributions.

[John of PA]

Safe Harbor

In Bees Knees earlier post, putting it in one sentence, option 1 is a safe harbor election that eliminates any dicrimination(sp) requirements: doesn't matter whos in or out (and a good option). Also 401k is a trust, SIMPLE is not; which could come into play if business is sued.

[JON]

401K Simple

I thought all Simple plans were exempt from any 5500 filings. The 401K plan takes withholdings commingles in a trust account and no 5500's? I we sure that is the only differnce??? Can this plan(401K-Simple) be added to a regular old profit sharing plan?????Without requiring any 5500 on the 401K-Simple portion????

[Bees Knees]

A SIMPLE 401(k) cannot be mixed with any other plan. If you want to mix it with a profit sharing plan, you have to do it with a regular 401(k) or safe harber 401(k).