Simple IRA vs. 401k
A Simple IRA (Savings Incentive Match Plan for Employees) is typically used by small businesses with fewer than 100 employees. It allows employees to contribute a portion of their pre-tax income to the plan, up to a certain limit, and employers are required to make either a matching contribution or a non-elective contribution. Contributions to a Simple IRA are tax-deductible, and the money grows tax-deferred until it's withdrawn in retirement. Simple IRA plans have lower contribution limits than 401k plans, which can make them a good choice for small businesses that want to offer retirement benefits without incurring high administrative costs.
A 401k is a retirement savings plan offered by larger employers. It allows employees to contribute a portion of their pre-tax income to the plan, up to a certain limit, and employers may also make contributions to the plan. The money in a 401k grows tax-deferred until it's withdrawn in retirement, and contributions to a 401k are tax-deductible. 401k plans typically have higher contribution limits than Simple IRA plans, and some employers may also offer matching contributions, profit-sharing contributions, or other incentives to encourage employees to save for retirement.
In summary, while both a Simple IRA and a 401k are retirement savings plans, the Simple IRA is typically used by small businesses with lower contribution limits and required employer contributions, while the 401k is more commonly offered by larger employers with higher contribution limits and optional employer contributions.