“Set it and forget it.” That’s the approach many firms—all small businesses, really—take when it comes to retirement plans. Once their plans are up and running, they move into maintenance and administration mode, making sure everything is running smoothly from year to year, but rarely taking a step back to reassess whether their plan is right for their firm and its employees, even as the firm and talent marketplace change.
That’s a risky approach given the hypercompetitive market for talent today. Retirement plans can play a big role in attracting and retaining talent. If your firm offers an outdated plan, it can be at a competitive disadvantage when vying for new employees and looking to keep great professionals on board.
A strong retirement plan can be the tiebreaker for a prospective hire weighing multiple offers. And for current employees considering a move to another firm, it can provide a strong incentive to stay with you. In some cases, this all comes down to the differences between a SIMPLE IRA and a 401(k), two of the most common retirement plan options adopted by CPA firms of all sizes.
401(k) plans: More flexibility, bigger contributions
The differences are bigger than you might think, with 401(k) plans offering certain benefits over SIMPLE IRAs across
a number of important categories, for both the firm and its employees. If your firm is looking for a flexible plan
design that will better align with its tax saving strategy, including options such as profit sharing, a 401(k) could
be the best option. Looking to maximize partner and key employee contributions? A 401(k) plan offers the advantage
here as well. Here’s a more detailed comparison of the two types of plans.
- $16,000 salary deferral allowed
- $3.500 additional catch-up for those age 50 and up
- Post-tax (Roth) contributions not available
- $23,000 salary deferral allowed
- $7,500 additional catch-up for those age 50 and up
- Contributions may be pretax or post-tax (Roth)
- Mandatory: 3% employer match for 3 out of 5 years, with 1% minimum required for other two years
- OR
- 2% non-elective employer contribution
- Additional employer contribution not allowed
- Optional employer contributions
- If employer contributions are selected in the plan design, several flexible options are available for matching, profit sharing, and vesting schedules
- Employee: $16,000 (if 50 or older, additional $3,500 allowed)
- Employer: Must make matching contributions up to 3% of employee compensation or contribute 2% of total eligible employee compensation
- Employee/Employer combined: Up to the lesser of 100% of compensation or $69,000 ($76,500 if 50 or older)
- Have earned at least $5,000 in any of the two preceding years
- Be reasonably expected to earn $5,000 this year
- No age limit permitted
- Complete up to 1 year of service
- Complete up to 1000 hours of work
- Be at least age 21
* SIMPLE IRA plans are for employers with fewer than 100 employees
Here to help
If your firm already has a SIMPLE plan in place and looking to upgrade to a 401(k), but is worried about the effort
required, don’t worry—companies make this type of transition all the time. And if you don’t currently have a
retirement plan in place, this might be an ideal time to launch one. In either of these scenarios, we can help.
401(k) plans provided through the exclusive AICPA 401(k) Plans for Firms can help maximize your employees’
retirement savings—and help your firm become an even more desirable place for both employees and prospective hires.
For more information on the plans offered by the AICPA, as well as exactly how we help firms implement and improve their retirement plans, start by visiting aicpa.org/retirement.
