Business owners have until October 1 to set up a new SIMPLE 401(k) plan, allowing employees to make elective salary deferrals before the new year. Learn about these and other tools to save for retirement with advisors at EP Wealth.
What Is the SIMPLE 401(k) Establishment Deadline for 2025?
A Savings Incentive Match Plan for Employees (SIMPLE) 401(k) plan is a practical, cost-efficient tool to help small business owners and employees save for retirement. Employers have until October 1st to set up a SIMPLE 401(k) to use it for that same tax year. We’ll explain why this deadline matters and how it can help you and your team stay on track with your retirement planning objectives.
SIMPLE 401(k) Plans: Features and Deadlines
SIMPLE 401(k) plans are a specialized type of traditional 401(k) designed for businesses with 100 or fewer employees. Employers can contribute in one of two ways:
- Non-Elective Contributions: Contribute 2% of each eligible employee’s pay, regardless of whether the employee contributes.
- Dollar-for-Dollar Matching: Match employee contributions up to 3% of their pay.
Deadlines for Setting Up a SIMPLE 401(k):
- Employers can establish a new SIMPLE 401(k) between January 1 and October 1 of the year it will take effect, provided they did not previously maintain a SIMPLE 401(k).
- Businesses with a prior SIMPLE 401(k) must wait until January 1 to set up a new plan.
- For new businesses launched after October 1, plans can be opened as soon as administratively feasible.
Once established, SIMPLE 401(k) plans operate on a calendar-year basis. The October 1 deadline is significant as it gives employees additional time to make salary deferral elections before contributions begin at the start of the new year.
Contribution Limits for 2025:
- Elective deferral limit: $16,500 (an increase of $500 from 2024).
- Catch-up contributions for employees aged 50 and older: $3,500.
Is a SIMPLE 401(k) Right for Your Business?
Offering a retirement plan is a powerful way to attract and retain top talent, helping drive your business toward long-term success. For many small businesses, a SIMPLE 401(k) is an excellent starting point to help both employers and employees build a secure financial future.
SIMPLE 401(k) plans stand out for their simplicity and affordability:
- Ease of Administration: These plans are straightforward to set up and require minimal paperwork, making them less costly to manage.
- Employee Ownership: Employees have full ownership of the funds in their accounts, including any interest earned.
- Loan Availability: Employees can take loans against their SIMPLE 401(k) accounts for unexpected expenses, providing added financial flexibility.
Considerations for Business Owners
While SIMPLE 401(k) plans offer many advantages, it’s important to evaluate their potential drawbacks:
- Limited Investment Options: SIMPLE 401(k)s provide fewer investment choices, so it’s essential to explore additional ways to diversify your retirement offerings.
- Exclusive Plan Limitation: Employers cannot offer other retirement plans alongside a SIMPLE 401(k).
- Lower Contribution Limits: These plans have lower contribution limits compared to traditional 401(k)s or other retirement savings vehicles.
- Vesting: Both employer and employee contributions are 100% vested.
If your business grows and your staff exceeds 100 employees, you’ll need to transition to a different retirement plan. Fortunately, a two-year grace period allows you to continue offering the SIMPLE 401(k) while exploring and implementing alternatives.
Find an EP Wealth business planning advisor near you to learn more about SIMPLE plans and other ways to help you and your team save for a bright future ahead.
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