Which of the following are reasons a small business might choose the SIMPLE over a Section 401(k) plan?
A) The employer expects that it could not satisfy the Section 401(k) nondiscrimination test.
B) Because a SIMPLE is less costly to operate, it is generally the better choice if the employer is not concerned about the design constraints of the plan.
C) A Section 401(k) plan would be top heavy (benefits for key employees will exceed 60% of total benefits), and the employer wants to minimize employer contributions.
D) All of these are reasons.

Question

14-11-2022
Business

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Which of the following are reasons a small business might choose the SIMPLE over a Section 401(k) plan?
A) The employer expects that it could not satisfy the Section 401(k) nondiscrimination test.
B) Because a SIMPLE is less costly to operate, it is generally the better choice if the employer is not concerned about the design constraints of the plan.
C) A Section 401(k) plan would be top heavy (benefits for key employees will exceed 60% of total benefits), and the employer wants to minimize employer contributions.
D) All of these are reasons.

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shomerajeshwari90 shomerajeshwari90 · Answer 1 · 2022-11-19T05:41:52+01:00

The correct answer is (d), all the mention point are important for considering SIMPLE over section 401 (k).

The correct answers are:

Because a SIMPLE is less costly to operate, it is generally the better choice if the employer is not concerned about the design constraints of the plan.
The employer expects that it could not satisfy the Section 401(k) nondiscrimination test.
If a Section 401(k) plan would be top heavy (benefits for key employees will exceed 60% of total benefits), and the employer wants to minimize employer contributions.

Retirement savings accounts known as section 401(k)s are provided by small company employers having 100 or less employees. Employees can choose to contribute a portion of their pay to the plan, and employers are required to match or non-electively contribute a significant proportion of each employee's pay.

The Internal Revenue Service (IRS) has established contribution limit caps and certain qualification restrictions for employers who want to create these plans.

Learn more about section 401(K) here:

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