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Publication 560

SIMPLE 401(k) Plan(p11)

You can adopt a SIMPLE plan as part of a 401(k) plan if you meet the 100-employee limit as discussed earlier under SIMPLE IRA Plan. A SIMPLE 401(k) plan is a qualified retirement plan and generally must satisfy the rules discussed under Qualification Rules in chapter 4, including the required distribution rules. However, a SIMPLE 401(k) plan is not subject to the nondiscrimination and top-heavy rules discussed in chapter 4 if the plan meets the conditions listed below.
  1. Under the plan, an employee can choose to have you make salary reduction contributions for the year to a trust in an amount expressed as a percentage of the employee's compensation, but not more than $11,500 for 2012 ($12,000 for 2013). If permitted under the plan, an employee who is age 50 or over can also make a catch-up contribution of up to $2,500 for 2012 and $2,500 for 2013. See Catch-up contributions, earlier under Contribution Limits.
  2. You must make either:
    1. Matching contributions up to 3% of compensation for the year, or
    2. Nonelective contributions of 2% of compensation on behalf of each eligible employee who has at least $5,000 of compensation from you for the year.
  3. No other contributions can be made to the trust.
  4. No contributions are made, and no benefits accrue, for services during the year under any other qualified retirement plan sponsored by you on behalf of any employee eligible to participate in the SIMPLE 401(k) plan.
  5. The employee's rights to any contributions are nonforfeitable.
No more than $250,000 of the employee's compensation can be taken into account in figuring matching contributions and nonelective contributions in 2012 ($255,000 in 2013). Compensation is defined earlier in this chapter.

Employee notification.(p11)

The notification requirement that applies to SIMPLE IRA plans also applies to SIMPLE 401(k) plans. See Notification Requirement in this chapter.

Credit for startup costs.(p11)

You may be able to claim a tax credit for part of the ordinary and necessary costs of starting a SIMPLE 401(k) plan that first became effective in 2012. For more information, see Credit for startup costs under Reminders, earlier.

Note on Forms.(p11)

Please note that Forms 5304-SIMPLE and 5305-SIMPLE can not be used to establish a SIMPLE 401(k) plan. To set up a SIMPLE 401(k) plan, see "Adopting a Written Plan" in chapter 4.