A retirement plan provided by an employer, which avoids administration fees and paperwork is defined as Simple 401k plans. A tax-deductible contribution to the plan is a benefit the employer receives as where the employee may decide to have salary deferrals in order to contribute to the plan. The employer has the option of matching the employee’s contribution to the plan, which is always a win/win situation for an employer/employee relationship.

If you are a sponsor or a participant and are wondering if the Simple 401k plan is best for you then check out these facts about Simple 401k plans. There are two types of Simple plans: Simple IRAs and Simple 401k plans. Both are simplified retirement plans designed for small employers with 100 or fewer employees. It is required for the employer to make a contribution to the plan. There are different contribution plans the employer can choose from: A basic contribution of at least 2% of compensation for all eligible employees earning at least $5,000; or at least 100% matching contribution up to the first 3% of compensation. The employer has the option with Simple IRA plans only, to reduce the matching contribution as low as 1% for no more than two out of five years ending with current year. With the Simple 401k plan, the option to reduce the matching contribution below 3% is not available.

In the past, naught was mentioned about Simple 401k plans. The fact is that Simple 401k plans are a cross between a Simple IRA and traditional 401k plan and offers the best of both plans—for the most part. Here are some of the features of the Simple 401k plan.

To ensure the plan operates with certain regulatory requirements, testing must be done with a 401k plan. A Simple 401k plan does not require testing which can be very appealing to business owners. Contributions are another benefit for a Simple 401k plan. Contributions to a Simple 401k are immediately 100% vested, which means employees that meet requirements to receive distributions may withdraw their entire account balance at any time. Contribution limits are lower as well. Contribution limits for a Simple 401k plan are substantially lower than the traditional 401k plan.

When an employer sponsors a Simple 401k plan, he or she cannot maintain any other kind of plan for employees who are eligible to participate. This is called a One Plan Limitation.

The Simple 401k plan is available to those same employers who meet the requirements of those are can adopt a traditional 401k plan. This would include sole proprietors, partnerships and corporations. There is a restriction, although for how many employees who are on the plan, which is 100 for the Simple 401k plan and who have received at least $5,000 in compensation for the preceding year.

The deadline to establish a Simple 401k is between January 1st and October 1st. There is an exception to the rule which applies to businesses that come into existence after October 1st. The plan can be established as soon as administratively feasible for these particular businesses.