A 401(k)-style experience with a plan-level advisor relationship. It’s quick to set up, and ongoing maintenance is easy and inexpensive. A subset of the 401 (k) plan is the SIMPLE 401 (k) plan. The SIMPLE IRA vs. 401 (k) decision is, at its core, a choice between simplicity and flexibility for employers. The retirement plan not only allows the employer to claim a tax deduction for contributions but also serves as a means of attracting highly competent employees. SIMPLE IRA makes a lot of sense for self-employed individuals. So which type of retirement plan makes the most sense for you? Her work has been featured by Forbes, Real Simple, USA Today, Woman's Day and The Associated Press. Many or all of the products featured here are from our partners who compensate us. Internal Revenue Service (IRS). When evaluating offers, please review the financial institution’s Terms and Conditions. But if you have employees, you are required to provide contributions to their accounts. An employee may initiate a withdrawal at any time, subject to current federal income taxes. For example, instead of a traditional 401(k) plan, aContinue Reading SIMPLE 401(k) If a SIMPLE IRA is the direction you want to go, you’ll need to follow a few steps. "Income Ranges for Determining IRA Eligibility Change for 2021. As you consider a SIMPLE IRA vs 401k, keep in mind that the requirements of the 401k are more onerous, but that most employees bypass the requirements early in their careers, before they even begin thinking about the accrual of retirement capital. SIMPLE IRAs carry a lower administrative burden than 401(k) Safe Harbor Plans, due to simplified plan documents, and no annual compliance testing or 5500 government reporting requirements. One difference between a SIMPLE IRA and a 401 (k) is the way employer contributions are treated. A designated Roth account is a separate account in a 401(k), 403(b), or governmental 457(b) plan that holds designated Roth contributions. Savings Incentive Match Plan for Employees (SIMPLE IRA), and; Individual 401(k) — sometimes called a solo 401(k) or a self-employed 401(k). 401(k) plans require a lot more work to … Safe Harbor 401(k) vs. 401(k) 2021 comparison chart Feature SIMPLE IRA Safe Harbor 401(k) 401(k) Eligible employer Employers who on any day during the preceding year have 100 or fewer employees earning $5,000 or more in compensation. However, employer contributions for the SIMPLE IRA and the SIMPLE 401(k) are subject to different rules. All financial products, shopping products and services are presented without warranty. Criteria: SIMPLE IRA: 401(k) Key Advantage(s) Little administrative paperwork. This option is not available for SIMPLE 401(k)s.. If under age 59½, the employee may be subject to a 25% penalty if the withdrawal is taken within the first 2 years of participation, and a possible 10% penalty if it's taken after the first 2 years. Read more. A SIMPLE IRA plan is similar to a Solo 401k Plan in that it is funded by employee deferrals and additional employer contributions. Although a nice perk to attract potential employees, employer contributions are not required of companies that offer 401(k) plans. For instance, all employer contributions to a SIMPLE 401(k) are subject to the compensation cap (which is $290,000 for 2021, up from $285,000 for 2020), while only non-elective employer contributions to SIMPLE IRAs are subject to the compensation cap. Yes, there is a big difference between an IRA and 401k. The business owner is allowed to make both an employee and company contribution to the plan. Traditional 401k A traditional 401k Instead, any employee who earned at least $5,000 during any two preceding years and is reasonably expected to earn $5,000 in the current year must be allowed to participate in the plan. A SIMPLE 401(k) allows small businesses to help their employees save for retirement. Another big difference is that you can opt for a Roth version of the plan, whereas the SIMPLE IRA allows no Roth provision. Internal Revenue Service (IRS). An Independent 401(k) is a tax-advantaged retirement savings plan available to individual small business owners and their spouses. Rollover rules are also different for a SIMPLE IRA versus a 401(k). Choosing a retirement plan is one of the most important financial decisions a business owner will make for their business. ", IRS. Jane, an employee, is eligible to participate in the plan. Dayana Yochim is a former NerdWallet authority on retirement and investing. One of the main differences between the traditional IRA and 401k is that IRA or the Individual Retirement Arrangement is planned by the employee, whereas, 401k is planned by the employer. October is the best time to consider converting a SIMPLE to a 401(k). Simple IRA vs. 401(k) One difference between a SIMPLE IRA and a 401(k) is the way employer contributions are treated. While many employers offer generous matching with their 401(k) plans, such matching is totally optional. SIMPLE IRAs vs 401(k)s. A SIMPLE IRA has its advantages and disadvantages versus a 401(k). A SIMPLE IRA is an employer-sponsored retirement plan that lets employers and employees contribute to individual IRAs established for every employee under the plan. Employer sets vesting schedule for employer contributions. Much of the IRS literature comparing these three options is rather complicated. Retirement Plan Comparison: 401(k) vs. If you are self-employed or a small-business owner, your options may not be limited to SIMPLE IRA vs. 401(k). Higher setup costs and administrative requirements. FIRA, 401k, ROTH IRA, SEP IRA, SIMPLE IRA, etc., etc., etc. Internal Revenue Service (IRS). Both are taxed once money is withdrawn. Now, if you’re self-employed and have employees and you’re curious as to whether to go with the SEP IRA over the SIMPLE IRA or traditional 401k, I would still say, mostly, no. Participants may be allowed to choose account provider. The deadline to establish either plan is from January 1 to October of the year. The SEP IRA and SIMPLE IRA were created to help smaller employers, including the self-employed, have a more robust vehicle to help employees save for retirement. December 30, 2020. The contribution limit for a 401(k… All are valid reasons but does that … That penalty can vary depending on circumstances, like how long you had the account open and which account you are withdrawing from. This can make it difficult to know which plans are … A SIMPLE IRA is only available to small businesses with 100 or fewer employees. Just like the SIMPLE IRA plan, this is a plan just for you: the small business owner with 100 or fewer employees. $19,500. Both 401(k)s and SIMPLE IRAs are tax-advantaged plans that allow employees to make contributions from their salary that are excluded from taxable income. Please help us keep our site clean and safe by following our, Prevent identity theft, protect your credit, The difference between term and whole life insurance, How medical conditions affect your life insurance rate, SIMPLE IRA vs. 401(k): The Pros and Cons of Each Plan. IRS Publication 560: Retirement Plans for Small Business, SIMPLE IRA Plan FAQs - Establishing a SIMPLE IRA Plan, Choosing a Retirement Plan: SIMPLE IRA Plan, Choosing a Retirement Plan: SIMPLE 401(k) Plan, 2021 Limitations Adjusted as Provided in Section 415(d), Income Ranges for Determining IRA Eligibility Change for 2021. For the SIMPLE IRA, an employer who elects to make matching contributions may choose to reduce the amount to one that is less than 3% but no less than 1% for two out of every five years. Or an employer could choose between a SIMPLE 401(k) and a SIMPLE IRA. Regain Control Of Your Calendar. As the employer and (your own) employee, you’re allowed to contribute a total of up to $57,000 in 2020 (or $63,500 if you’re age 50 or older) and $58,000 (or $64,500 if age 50 or older) in 2021. The SIMPLE 401(k) plan is a cross between a SIMPLE IRA and a traditional 401(k) plan and offers some features of both plans. However, just as with the SIMPLE IRA plan, there is a two-year grace period if you exceed 100 employees, to … Fortunately, most of that literature is irrelevant if you have no employees. Accessed April 12, 2020. Unless you are self employed then the options that are most available to you are going to be a 401k and/or an IRA. The employee contribution is limited to $18,500 for 2018. … However, this does not influence our evaluations. This applies to all types of retirement accounts: Traditional, Roth (though, possibly without the taxes), SEP, and SIMPLE IRAs. Internal Revenue Service (IRS). Employers cannot maintain any other retirement plan for employees who are eligible to participate in the SIMPLE 401(k). However, the employer can choose to maintain a second retirement plan to cover those employees who are not eligible to participate in the SIMPLE 401(k) plan. For high earners especially, the higher contribution limit of the 401(k) makes it a more attractive choice than a SIMPLE IRA. There is no Roth version of the SIMPLE IRA. Funds contributed into a SIMPLE IRA or a 401(k) plan retain their tax-deferred status until they are withdrawn, at which time they are treated as ordinary income to the taxpayer. Our opinions are our own. There are also some minimum income limits that employees must meet to qualify for the plan. January 15, 2021. SIMPLE IRA. They're mandatory in a SIMPLE IRA but optional for a 401(k). "Choosing a Retirement Plan: SIMPLE IRA Plan." Internal Revenue Service (IRS). 401(k) SIMPLE IRA. The Most Significant Distinctions Between the SEP IRA vs Solo 401k The term IRA stands for “Individual Retirement Account,” one of the two most standard retirement accounts that any individual can have. Contribution limits are generous under the Solo 401(k), allowing for the same maximum tax deferrals as the traditional 401(k). SIMPLE IRAs contributions work differently than SEP IRAs and 401 (k)s. An employer can either match up to 3% of an employee's annual contribution or set … Accessed April 12, 2020. Employee contributions vest immediately. SIMPLE IRA vs. It is important to think about them carefully and review the options with financial and tax advisors. These high contribution limits help ensure that participants are well prepared for retirement when the time comes. In contrast, the SIMPLE IRA requires employers to contribute either a fixed 2 percent of all employees’ compensation or match up to 3 p… For example, if you run a business with no employees, a solo 401(k) is worth considering. Mark Widlowski, CLU, CLTC | October 20, 2020 Share | Should I switch from a Simple to a 401K plan? 3 These plans are generally available to small businesses with 100 or fewer employees. Things to Consider (For Employers) Mid-year termination of a SIMPLE Plan is not allowed. Simple IRA A Simple IRA is hybrid between an IRA and 401k in which an employer funds an employee IRA. SIMPLE 401(k) If you work for a small business (one with 100 or fewer employees) you may not think much of your retirement savings options. For the non-elective contributions, employers must contribute 2 percent of the employee's compensation.. Mandatory employer contribution: Either matching contribution of up to 3% of employee's pay or contribution equal to 2% of employee’s compensation, even if employee does not contribute. Employer contributions to employee SIMPLE IRA accounts are mandatory, though you can choose between two matching arrangements dictated by the IRS. 4 A SIMPLE IRA works like a cross between traditional IRAs and 401 (k) plans. SIMPLE IRA vs. This level of flexibility is impressive, as this type of plan doesn’t place employees’ funds too far out of reach. The amount Jane receives as an employer contribution is determined by the type of SIMPLE that ABC adopted: As stated earlier, the non-elective contribution is subject to the same compensation cap for both plans. Unlike the SIMPLE IRA, which is limited to small businesses, public and private companies of any size can set up a 401(k). Employers who choose to offer SIMPLE IRAs are generally required to match, dollar for dollar, anywhere from 1%–3% of the … A SIMPLE 401(k) offers optional loans, as well as hardship withdrawals. $6,000 for 2019, plus $1,000 catch-up contribution if age 50 or older . retirement plan options for the self-employed, Smart Money Podcast: Reducing Taxes, and Picking the Best Investing Platform, 6 Tips to Help Your Portfolio Weather the Coronavirus Crash, All employees who have compensation of at, All employees at least 21 years old who worked at least 1,000 hours in a previous year, No annual tax filing requirements; annual plan details must be sent to employees, Subject to annual compliance testing to ensure plan does not favor highly compensated employees, Any investments available through the financial institution that holds accounts, Investment selection curated by employer and plan administrator. $13,500. She receives compensation of $350,000 for the year from the company. The legislation would change this. Internal Revenue Service (IRS). The Savings Incentive Match Plan for Employees (SIMPLE) IRA is an alternative to offering your employees a 401k account, and the comparison of a SIMPLE IRA vs 401K is imperative for businesses. If that’s the case, contribution limits should weigh heavily in your decision. For employees, the biggest differences between a SIMPLE IRA vs. 401(k) are the greater contribution limits available with a 401(k). Traditional IRA vs. 401(k) Both a traditional IRA and a 401(k) plan provide a tax benefit each year an individual contributes to the plan. This can make it difficult to know which plans are best suited for you and your business. Employer contributions deductible up to IRS limits. Yes. The kind of plan you pick could have an enormous impact on the finances of everyone involved in your business. Participants who are at least age 50 by the end of the year may make catch-up contributions. Using Both A person can have both an IRA and 401k plan to maximize savings toward retirement. 401K Vs SIMPLE IRA: Which Plan Is Best for My Company? The types, styles and rules for retirement plans are just mind boggling. SIMPLE 401(k): Key Differences. In 401k, if he withdraws funds before that age, then he is liable to pay 10% on tax. No. However, they each have unique features that could make them desirable to you individually. A SIMPLE IRA is a retirement savings plan that can be used by most small businesses with 100 or fewer employees. Simple IRA VS 401K. A 401 (k) and IRA are both tax-advantaged retirement accounts, but 401 (k)s are offered by employers (who often match employee contributions), whereas IRAs can be … Therefore, if ABC Company had elected to make non-elective contributions, Jane's contribution amount would be the same under both plans. For both the SIMPLE IRA and the SIMPLE 401(k), eligible employers must have no more than 100 employees who have received at least $5,000 in compensation from the employer for the previous year. SIMPLE IRA Plus. SIMPLE IRA. An employer offering a 401(k) plan can choose whether to match employee contributions. Related Articles. Comparing The Tax Advantages Of A 401(k) Vs A SIMPLE IRA. To qualify, employers must have no more than 100 employees who have received at least $5,000 in compensation from the employer for the previous year. An employer who chooses a SIMPLE IRA is not allowed to maintain any other plan while maintaining a SIMPLE IRA., Exceptions are allowed for employees covered under a collective bargaining agreement, and plans that cover these employees are disregarded for this purpose.. Reasons for this decision could have included . "SIMPLE IRA Plan FAQs - Contributions." To be covered by a plan at work and to qualify for a deduction, a single person must make less than $65,000, and a married couple must make … When comparing a SEP IRA to Solo 401(k), it’s important to know that business owners can make larger retirement contributions to a Solo 401(k) for a given level of compensation. As an employer you made a decision to offer a Simple IRA retirement plan for your company and employees. The main difference between the two is that SIMPLE IRAs are simpler and easier for small businesses, whereas 401 (k)s are more administratively complex but offer more … Savings Incentive makes it possible for companies with as few as two employees to establish a 401(k) or IRA. They're mandatory in a SIMPLE IRA but optional for a 401 (k). The SIMPLE 401 (k) plan is a cross between a SIMPLE IRA and a traditional 401 (k) plan and offers some features of both plans. Employees generally do not contribute to these IRAs. Both plans permit the same type of contributions. » Ready to open a SIMPLE, traditional or Roth IRA? In 1978, the United States Congress amended the Internal Revenue Code to add section 401(k).Work on developing the first plans began in 1979. Employee contribution limit: $13,500; $16,500 for those age 50 or older. Traditional IRA. No other retirement plans can be continued with a SIMPLE IRA for a particular year. SIMPLE 401(k): An Overview Small business employers have a variety of choices if they want to offer a tax-advantaged retirement plan. If you find discrepancies with your credit score or information from your credit report, please contact TransUnion® directly. It would allow employers to make matching contributions under a 401(k), 403(b) or SIMPLE IRA based on “qualified student loan payments.” Thus, … A Savings Incentive Match Plan for Employees (SIMPLE) is a tax-deferred retirement savings account. And the contribution limits are lower for SIMPLE IRAs than for 401(k)s.Still, SIMPLE IRAs have some advantages. With a 401(k), employers are not required to make contributions, although many employers elect to make some type of matching contribution for participating employees. Allow profit sharing contributions. "Choosing a Retirement Plan: SIMPLE 401(k) Plan." If you’re considering adding one of these, you know that it’ll make you more competitive and boost employee satisfaction. But eventually the limitations of a SIMPLE will wear on an employer, so they may consider making the change to 401(k). Combined contributions of employee and employer are limited to the lesser of 100% of compensation or $57,000 ($63,500 if age 50 or older) in 2020 and $58,000 ($64,500 if age 50 or older) in 2021. "SIMPLE IRA Plan FAQs - Establishing a SIMPLE IRA Plan." The following chart lays out the details of each of the retirement plans. by John Stebbins - October 22, 2020. 401k plans As a result, the two plans will require/allow different employer contribution amounts. Many employees have come to expect a 401(k) as part of their benefits package. "401(k) Plan Qualification Requirements." Compare Business 401(k) vs Simple IRA Plans Small Business 401(k) Plan Overview . Because the SIMPLE IRA is an IRA-based plan, loans are not allowed. See the top-rated IRA account providers. A SIMPLE 401(k) offers optional loans, as well as hardship withdrawals. $900 Billion Stimulus Package Details – Episode 266 . SIMPLE IRA vs. Solo 401(k) vs. SEP IRA By Barbara A. Friedberg - May 7 , 2016 Saving for retirement has transitioned from the historical, defined benefit pension plan – where your employer took care of the future with a nice pension plan – to more of a, “you’re on your own” type of structure. They sound similar, but there are important differences between them that employers need to review. If you are looking to implement a company retirement plan for the first time, hopefully this comparison of the SIMPLE IRA vs 401k has been helpful. SIMPLE IRAs cannot be terminated in the middle of the year. Whether you’re just looking to confirm a choice or haven’t even begun to make one, you know this is an important decision. No non-discrimination testing is required for either plan, and both plans are subject to the 60-day annual notification requirement. SIMPLE IRA vs. Plan participants must be notified at least 60 days in advance (November 2) for SIMPLE IRA termination at year-end. Employee catch-up contribution (if age 50 or older by year-end) $6,500. When is comes to the battle of retirement plans, SEP IRA vs Solo 401k, the Solo 401k is the clear winner (if you are self-employed and you or your spouse are the only employees). No limit on employer matching contribution; if using the 2% contribution based on compensation, employer match allowed on up to $285,000 of salary ($290,000 in 2021). For example, instead of a traditional 401(k) plan, a small business owner can opt for a SIMPLE 401(k). Maximum employee elective deferral. Dollar-for-dollar match of employee contributions up to 3% of each employee's compensation (which can be reduced to as low as 1% in any 2 out of 5 years). Understanding the Solo 401(k) Employee Deferral Rules. While the SEP IRA and SIMPLE IRA look a lot like traditional 401 (k) programs, they differ in important respects from that as well as from each other. Both the simple 401k and traditional 401k have some potential benefits for you when saving for retirement. These plans share many similarities, but they also have differences that could provide enough reason to choose one type of SIMPLE plan over the other. The aptly named SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees, is the more straightforward of the two options. Requires minimal administrative management. SIMPLE 401(k): Key Differences. Pre-qualified offers are not binding. Accessed April 12, 2020. (Quick reminder: A Roth 401(k) is funded with after-tax contributions in exchange for tax-free distributions in retirement.) SIMPLE IRA vs. 401 (k) plans are available to both small and large businesses. A 401(k) plan is a tax-advantaged retirement account offered by many employers. Simple IRA vs. 401(k) SIMPLE IRA plans (Savings Incentive Match PLan for Employees) were introduced in 1996 as part of the Small Business Job Protection Act. An employee can withdraw funds starting from the age of 59 1/2 year. A SEP IRA stands for “Simplified Employment Plan” IRA. The purpose of the Simple Plan is to provide small employers with a qualified plan option with fewer administrative responsibilities and lower costs than a traditional 401(k) plan. Can be combined with other retirement plans, such as cash balance plans. The total contribution limit (including both employee and employer contributions) is $57,000 for 2020. Generally, with the SIMPLE IRA vs 401k debate, the IRA option is stronger for individuals and businesses that may need a measure of flexibility, whereas the 401k option does more to promote a sense of continuity for all parties involved. This information may be different than what you see when you visit a financial institution, service provider or specific product’s site. It would allow employers to make matching contributions under a 401(k), 403(b) or SIMPLE IRA based on … Although a 401(k) plan can be more complex to establish and maintain, it provides higher contribution limits and gives you more flexibility to decide if and how you want to contribute to employee accounts. (Here’s more on what a SIMPLE IRA is and how to open one.). Savings Incentive Match Plan for Employees, or SIMPLE is available in both IRA and 401(k) formats. "2021 Limitations Adjusted as Provided in Section 415(d). Here are the need-to-know differences between SIMPLE IRAs and 401(k)s: Startup costs and ease of setup often dictate the choice between retirement savings plans. These include white papers, government data, original reporting, and interviews with industry experts. Contribution Limits and Employer Match. Those 50 and over can contribute an additional $6,000. Employee contribution limit: $19,500; $26,000 for those age 50 or older. SIMPLE IRA vs. 401(k) This plan type differs from 401(k) plans. To help decide which plan is best, answer the following questions: For many small-business owners, the answer is that they’re trying to maximize their own retirement savings dollars. Maximum compensation used to determine this contribution is $285,000 for the 2020 tax year and $290,000 for the 2021 tax year. SIMPLE accounts can be established by employers, including self-employed individuals. There are a variety of retirement plans at your disposal. A company cannot offer other retirement plans in addition to a SIMPLE 401(k). The company can contribute up to 25% of salary or … Institutional pricing — Choose from 401(k) plan share classes — commissionable R-3 and fee-based R-5E. Accessed April 12, 2020. Tagged IRS rules, self-employed, small business owners. Small business employers have a variety of choices if they want to offer a tax-advantaged retirement plan. NerdWallet strives to keep its information accurate and up to date. Accessed April 12, 2020. The cost of administration decreases if you have more employees, which makes 401k's best suited for large … FIRA, 401k, ROTH IRA, SEP IRA, SIMPLE IRA, etc., etc., etc. That said, the IRS allows participants to save in both a SIMPLE IRA and a Roth IRA at the same time. Pretax 401(k) Maximum Contributions. They're also always fully vested in a SIMPLE IRA; for a 401(k), whether they are or not varies based on your plan. History of IRA and 401(k) plans. SIMPLE IRA Here's how three common retirement savings plans for self-employed workers stack … If you find discrepancies with your credit score or information from your credit report, please contact TransUnion® directly. Unless you are self employed then the options that are most available to you are going to be a 401k and/or an IRA. This deadline allows employees to make salary-deferral contributions before year-end. To be eligible to participate in the SIMPLE 401(k) plan, employees may be required to perform service for at least one year and reach the age of 21.. Accessed April 12, 2020. Simple IRA vs 401(k) vs Solo 401(k) vs SEP IRA. But there are other factors to consider as well. Your employer is required to make contributions to a SIMPLE IRA on your behalf. Required proportional contributions for each eligible employee if you contribute for yourself. Choosing a Solo 401k vs. The main difference between the two is that an IRA (Individual Retirement Account) is a form of retirement plan that you can create and fund yourself. In addition to the standard traditional IRA/Roth IRA options that everybody has, you have three more noteworthy options: Simplified Employee Pension (SEP IRA), Savings Incentive Match Plan for Employees (SIMPLE IRA), and; Individual 401(k) — sometimes called … ", Investopedia requires writers to use primary sources to support their work. An employer who establishes a SIMPLE IRA plan must establish an IRA for each eligible employee. This may influence which products we write about and where and how the product appears on a page. The IRA plan differs in this aspect. Retirement plans are one of the most sought-after employee benefits. Disclaimer: NerdWallet strives to keep its information accurate and up to date. Some plans are an administrative burden and can be quite costly to maintain. For flexibility, a 401(k) plan provides a wider array of choices, including a Roth option. Option 1. Many do, but in difficult economic times, matching programs can be among the first benefits to get cut. $3,000. This level of flexibility is impressive, as this type of plan doesn’t place employees’ funds too far out of reach. The following is an example of how this could affect the contributions that employees receive., ABC Company established a SIMPLE for its employees and has elected to make a matching contribution to the plan for the 2020 calendar year. This is also true from 401(k)s and similar account types. Establishing a SIMPLE 401(k) plan also helps small businesses attract and retain talented workers. A SIMPLE plan can apply for both 401(k) and IRA plans. Employees may make salary-deferral contributions, while employers may choose to make matching contributions to employees who make salary-deferral or non-elective contributions. Employer contributions deductible on business tax return. We’ve laid out the pros and cons for these and other retirement plan options for the self-employed. The reasons behind this dichotomy are described succinctly below. For the matching contributions, employers must contribute dollar for dollar up to 3 percent of the employee's compensation. Funds that are withdrawn before the taxpayer reaches the age of 59 1/2 years are considered to be an early withdrawal, and are subject to an additional 10 percent tax penalty. You also have the freedom to set vesting terms, which allows you to require employees remain employed by you for a set time before taking ownership of your contributions to their accounts. SIMPLE plans are designed for business with 100 employees or fewer who earn $5,000 or more per year. Yes. It is important to think about them carefully and review the options with financial and tax advisors. A small business owner who wants to avoid complex administration and limit costs may find SIMPLE plans attractive. Employer cannot maintain any other type of retirement plan. A Roth contribution option allows employees to also make after-tax contributions and make withdrawals in retirement tax-free. For simplicity, employers might prefer the SIMPLE IRA. SIMPLE IRAs vs 401(k)s. A SIMPLE IRA has its advantages and disadvantages versus a 401(k). Any business Any business On the other hand, an employer may include loans as a feature in a SIMPLE 401(k) plan. Simple IRA vs. 401(k) There is a wide variety of of retirement account types available to savers. The drawbacks: Like the SIMPLE IRA, a SEP requires employers to contribute to eligible employee accounts, and no Roth version is allowed. Here are a few things to consider about the simple 401k and traditional 401k. This information may be different than what you see when you visit a financial institution, service provider or specific product’s site. No loans permitted from SIMPLE IRAs. No Contribute 2% of each employee's compensation. A SARSEP is a simplified employee pension which was setup before 1997. … Option 2. SIMPLE IRAs are the most common, and are great as a starter plan for small businesses. SIMPLE IRA vs. A SIMPLE IRA works like a cross between traditional IRAs and 401(k) plans.