July 22, 2024

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A big business starts small

Is Simple Ira Or 401k More Beneficial For Your Small Business?

3 min read
Is Simple Ira Or 401k More Beneficial For Your Small Business?

Retirement always seems like it’s a long way away until one day you blink and you’re ready to retire. Life comes at us fast, and having a solid retirement plan for you and your employees is one of the best ways to prepare for the future and to keep everyone in your company happy.

When it comes to small businesses, two retirement plans are often compared side by side and business owners are tasked with deciding which plan will most benefit their company. These two retirement plans are the SIMPLE IRA (Savings Incentive Match Plan for Employees which is a specific type of Individual Retirement Account) and the 401k.

According to the plan providers at Ubiquity, each plan has unique features which may benefit specific businesses depending on the industry and the needs of the employees and employers within a company.

SIMPLE IRA vs. 401k: Contribution Limits

When it comes to the maximum allowable contributions for retirement plans, the 401k plan is the better option. A 401k plan allows contributors to save $19,500 per year ($26,000 if over the age of 50), while a SIMPLE IRA allows for savings of only $13,500 per year ($19,500 for those older than 50).

SIMPLE IRA vs. 401k: Company Growth

If you are satisfied with your company’s current size and have no plans to hire more employees, a SIMPLE IRA may be a good choice for your business’s retirement plan. However, if you think that you may want to expand your company, you’ll likely be better off with a 401k plan. This is due to the fact that the SIMPLE IRA can only be selected for companies with fewer than 100 employees, while a 401k plan can be implemented in companies with 1 employee or many hundreds of employees.

SIMPLE IRA vs. 401k: Employer Matching

With regards to the topic of employer matching, 401k plans allow for impressive flexibility as the employer can decide whether or not to match employee contributions. SIMPLE IRAs require that employers match employee contributions or make non-elective contributions to each employee’s plan.

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SIMPLE IRA vs. 401k: Taxes

SIMPLE IRA plans do not allow for the tax options that 401k plans do, eligible employees can only make “Traditional” contributions. With a 401k, employees can make “Roth” (after-tax) or “Traditional” (pre-tax) contributions depending on which is the best option for them.

SIMPLE IRA vs. 401k: Plan Initiation and Modification

The 401k plan tends to be the more appealing plan for small businesses when compared to the SIMPLE IRA across a number of features. However, in terms of how easy the plans are to create and manage, the SIMPLE IRA takes the crown. There are fewer requirements for the SIMPLE IRA as businesses do not need to maintain compliance with IRS standards or fill out as many forms that are necessary for 401k plans.


SIMPLE IRAs and 401k plans are both viable options for businesses depending on a company’s own, unique needs. It is important that you take the time to thoroughly research both types of retirement funds so that you can implement the best plan for your business.

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