Tax planning as in life can be a series of trade-offs. Whether to have a SIMPLE-IRA vs. a 401(k) plan is one of those trade-offs. And if you currently have a SIMPLE-IRA and want to change to 401(k), then you’ve got a November 1, 2017 deadline approaching.
That’s the date by which employers have to provide notice to their employees that 2017 will be the last year for the SIMPLE-IRA and will be replaced by 401(k).
So why change from SIMPLE to 401(k)? It is simple. That is, it’s easy to establish, relatively inexpensive to administer, and also easy to maintain. But here’s the trade-off. If your objectives are to:
- Not cover practically all employees
- Make larger contributions
- Favor owners and highly compensated employees
- Not have 100% vesting of employer contributions
- Maybe have better investment options
- Have the Roth option
- Allow for plan loans
- Have better creditor protection
Then you’ll need a 401(k) plan.
Which type of plan is best is, of course, based on each employer’s situation. Be sure to discuss the matter with your advisors. November 1, isn’t all that far away.
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