SIMPLE 401(K) PLANS
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Employers may set up SIMPLE 401(k) plans. These are an alternative to regular 401(k) plans. The SIMPLE plan is much easier to administer, but it has greater limitations.
The employee may defer up to
$10,000 under a SIMPLE 401(k), compared to $14,000 under a regular 401(k). Under a SIMPLE 401(k), the employer must match up to 3 percent of the employee elective deferrals. Alternatively, the employer may elect to make a 2 percent (non-matching) contribution (limited to $210,000 in 2005 and $220,000 in 2006) of compensation to all eligible employees, whether they defer salary or not).
The 401(k) is a very popular retirement plan because both employers and employees can contribute on a tax-deductible basis.
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