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SIMPLE Plans
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SIMPLE 401 (k) Plans
If you had 100 or fewer employees who earned $5,000 or more in compensation during the preceding year, you may be able to set up a SIMPLE 401(k) plan.
You can adopt a SIMPLE plan as part of a 401(k) plan if you meet the 100-employee limit.
A SIMPLE 401(k) plan is a qualified retirement plan and generally must satisfy the rules for qualified plans.
However, a SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy rules associated with qualified plans if certain conditions are met.
The notification requirement that applies to SIMPLE IRA plan also applies to SIMPLE 401(k) plans.
You may be able to claim a tax credit for part of the ordinary and necessary cost of starting a SIMPLE 401(k) plan.
Distributions from 401(k) plans:
Generally, distributions from a 401(k) plan are subject to taxes in the year they are distributed.
Early distributions (before age 59 1/2) are generally subject to a addition tax. The additional tax is 10% of the amount of the early distribution.
There are a number of exceptions where this additional tax will not apply even when the distribution is receive before reaching age 59 1/2.
For example:
- Distributions made due to the employee having a qualifying disability.
- Distributions made to an employee after separation from service if the separation occurred during or after the calendar year in which the employee reached age 55.
- Distributions made because of an IRS levy on the plan.
- Distributions made as part of a series of...
- substantially equal periodic payments
- beginning after separation from service and
- made at least annually for the life (or life expectancy) of the employee or the joint lives (or life expectancies) of the employee and his or her designated beneficiary.
- Under this exception, the payments (except in the case of death or disability) must continue at least 5 years or until the employee reaches age 59 1/2, whichever is longer.
Next:
SIMPLE Plans: Distributions, Rollovers, and Withdrawals
Related Links
- SEP Plans
- SARSP Plans
- SIMPLE Plans
- Qualified Plans
- What is a SIMPLE Plan?
- Who Can Participate in a SIMPLE Plan?
- Setting Up a SIMPLE Plan
- SIMPE IRAs
- Eligible Employees
- When to Set Up a SIMPLE Plan
- SIMPLE Plan Salary Reduction Contribution Limits
- Who Contributes to a SIMPLE IRA?
- Matching and Nonelective Contributions
- Choosing a Lower Matching Percentage
- Nonelective Contributions
- How Much Can a Nonelective Contribution Be?
- Maximum Compensation
- Time Limit for Employer to Deposit Salary Reduction Contributions
- Form W-2 Reporting for SIMPLE IRA Contributions
- Deducting Matching and Nonelective Contributions
- Timing Deductions for Contributions
- Two Ways To Set Up a SIMPLE Plan
- After the SIMPLE Plan is Set Up
- What is an Eligible Employee?
- What is an Excludible Employee?
- When To Set Up a SIMPLE IRA Plan
- Notification Requirement
- Election Period
- Credit for Small Employer Pension Plan Startup Costs
- Credit for Qualified Retirement Savings Contributions
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