Simple IRA vs. 401(k): What sets them apart?
1. Eligibility:
• Simple IRA: Allows all employees earning $5,000 or more to participate.
• 401(k): May include various eligibility criteria.
2. Contribution Limits:
• Simple IRA: Contributions are capped at $14,000 (2023 limit), with catch-up contributions for those aged 50 and above.
• 401(k): Allows higher contributions, with a $19,500 limit (2023 limit) and catch-up contributions.
3. Employer Contributions:
• Simple IRA: Employers must contribute either a 2% non-elective contribution or a matching contribution of up to 3% of the employee's salary.
• 401(k): Employer contributions vary, and they can offer a match or profit-sharing contribution.
4. Employer Contribution vesting
• Simple IRA: Immediate
• 401(k): Up to six years
5. Administrative Costs:
• Simple IRA: Typically, easier to set up and maintain, with lower administrative costs.
• 401(k): May involve higher setup and maintenance costs, especially for larger plans.
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