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SIMPLE vs. Sec. 401(k) comparison.

I. Major Reasons to Choose a Savings Investment Match Plan for Employees (SIMPLE) Individual Retirement Account (IRA). 1. Avoid 25% benefit limit per employee (Sec. 415). 2. Avoid 15% aggregate deduction limit (Sec. 404). 3. Avoid; $160,000 compensation limit on match. (Sec. 401 (a)(17)). 4. Avoid top-heavy rules and discrimination testing for salary deferrals. 5. Able to reduce match to 1% of compensation in two of every five years. 6. No compliance (Form 5500, Annual Return/Report of Employee Benefit Plan (With 100 or more participants)) costs. 7. Employer has no fiduciary responsibility for participant investment choices. 8. Only option available for governmental entities. 9. Lowest implementation and administrative cost.

II. Major Reasons to Choose a SIMPLE Sec. 401(k) 1. Avoid top-heavy rules and discrimination testing for salary deferrals. 2. Limit employees' in-service withdrawal rights. 3. Limit employee investment options to one financial institution without triggering "designated financial institution" issues. 4. Avoid higher early withdrawal penalty and rollover prohibition during employee's first two years of participation. 5. Provide plan loans. 6. Provide creditor protection for plan assets. 7. Provide employer oversight for plan distributions.

III. Major Reasons to Choose a Traditional Sec. 401(k) Plan 1. Avoid mandatory employer contributions. 2. Allow or provide higher employee. contribution levels ($9,500 vs. $6,000). 3. Allow or provide higher (or lower) employer contribution levels. 4. Apply vesting schedule to employer contributions. 5. Noncalendar Plan Years allowed. 6. Plan can be customized to achieve employer objectives. See the chart on pages 486-487 for a comparison of a SIMPLE with a Sec. 401(k) plan. From John M. Peterson, CPA, Goodman & Company, L.L.P., Norfolk VA.
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Title Annotation:Savings Investment Match Plan for Employees
Author:Peterson, John M.
Publication:The Tax Adviser
Article Type:Illustration
Date:Aug 1, 1997
Previous Article:Window available for change in beneficiary designation.
Next Article:Tax planning with substantially equal periodic payments.

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