If you’re thinking about establishing a SIMPLE in 2006 for your small business, then you don’t have much time. It must be place by October 1.
No doubt you’ve been told that it’s easy to establish – and relatively inexpensive – and also easy to maintain – and also relatively inexpensive. That’s true, or course. It’s called SIMPLE for those reasons. But don’t let being able to maintain a "hand-off" retirement plan at a relatively low cost drive your decision. Consider a 401(k) plan if you want to
- Not cover practically all employees
- Make larger contributions
- Not have 100% vesting of employer contributions
- Have the Roth option
- Allow for plan loans
And yes, it is more complicated to maintain and accordingly more expensive. Retirement planning is a lot like life. It’s a series of trade offs.
One more deadline. If you currently have a SIMPLE in 2006 but would like a 401(k) in 2007, you must make that decision and provide notice to employees at least 60 days prior to the start of the calendar year, November 1, 2006.
A SIMPLE can be rolled over to a 401(k) plan after a "2-year period" which begins on the date which the individual first participated in the SIMPLE.
Click here for a chart (PDF) that compares a SIMPLE with a 401(k) plan.