Have You Outgrown Your Retirement Plan?

Do you have a SIMPLE IRA? If your answer is “yes,” there’s a good chance that you established the plan during the early days of your business. And it has probably served you well up until this point.

The SIMPLE (an acronym for “Savings Incentive Match Plan for Employees”) IRA is the bread-and-butter plan for many small businesses. It is available to employers with less than 100 employees that do not sponsor other qualified retirement plans, such as a 401(k) plan or a cash-balance plan.

The issue? The SIMPLE IRA is often not sustainable for a growing small business. As a company scales, so does its workforce and retirement plan needs. A natural transition plan for many businesses is the 401(k), which can bring numerous benefits:

Greater flexibility

401(k) plans can offer sponsors and participants many valuable plan design features, such as more choices for eligibility criteria, a variety of vesting schedules, various employer contributions, allocation methodologies and levels, automatic enrollment, hardship distributions and participant loans, among others. These enhancements can bring greater flexibility within the plan, which can give way to more retirement savings — creating mutual benefits for business owners and their employees. Additionally, a 401(k) plan can be designed to cost less than a SIMPLE IRA, since 401(k) plans are not required to provide employer contributions, whereas SIMPLE IRAs require a fully-vested employer contribution.

Higher deferral limits

For 2017, participants can defer up to $18,000 into their 401(k) plans, with a $6,000 catch-up deferral (a total of $24,000) for those age 50 and older. This is a substantial boost compared to deferral limits for SIMPLE IRAs, which sit at $12,500 and $15,500, respectively. The difference might not seem substantial, but it can go a long way in helping those who want to ramp up more savings for their retirement.

More options

Business owners with 401(k) plans can offer more than one retirement benefit option to employees, including popular cash-balance plan opportunities that are not available to owners with SIMPLE IRAs.

…and don’t forget Roth contributions!

That’s right — participants have the ability to make both traditional and Roth contributions to a 401(k) plan. SIMPLE IRAs, on the other hand, don’t offer Roth contributions. Having a Roth option can be a huge differentiator for employees, particularly from a tax perspective.

If you’re hoping to convert your SIMPLE IRA into a 401(k) plan effective December 31, the deadline to notify your employees is November 2. Are you ready to make the change?

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
OneBite Editorial Staff
OneBite Editorial Staff

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Have You Outgrown Your Retirement Plan?

time to read: 2 min