Comparing the simple IRA versus 401k retirement plans offers some insight on which is the most appropriate based on your retirement goals.

Many people today are not only considering their retirement goals, but they are also wondering how to make ends meet. This concern can limit the amount of money that household budgets have available to invest in their future. Therefore, it is important to carefully compare the simple IRA versus 401k plans in order to get the most out of investment dollars.

There are many similarities between the simple IRA and the 401k plans that many employers offer. However, there are also many differences that can lead to which one an employer chooses to offer employees.

Simple IRA versus 401k - Eligible Employers

Employers are not all eligible for the same retirement plans. The simple IRA plan is only available to employers with 100 employees or less. Additionally, those employees must have received at least $5,000 in total compensation from the employer for the previous year.

If an employer offers the simple IRA, eligible employees may not participate in any other type of plan that is offered by the employer. Those employees who are not eligible for the 401k retirement plan can participate in other 401k plans.

A distinct difference in the simple IRA versus 401k plan is that if an employer maintains a simple IRA, other retirement plans are not allowed. One exception applies for employees who are covered by a collective bargaining agreement.

Also, if a merger or acquisition occurs during the same or following year that a simple IRA plan is maintained, the only plan requirement does not apply. This is especially important during this year and for years to come as many companies are bought out by larger companies.

Simple IRA versus 401k - Eligible Employees

There are also contrasting distinctions for employees who participate in the simple IRA versus 401k plans with their companies.

Age Requirements

The 401k plans generally require that employees be employed with the company for at least one year and be 21 years old. The simple IRA does not have an age requirement.

The employer has the option to implement other eligibility requirements. For example, most employers allow employees to participate in its retirement plans after 90 days of employment.

Regardless of which retirement plan an employer chooses to offer its employees, there are tax deductions for each employer contribution. Businesses can alleviate the administrative burden of managing retirement plans by using an investment company which specializes in managing plans for companies.

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