SIMPLE IRA Versus Safe Harbor 401(k)

SIMPLE IRAs and safe harbor 401(k)s are employer-sponsored retirement plans that allow participants to defer salary into the plan and receive either a non-elective or matching contribution from the business owner. Let’s examine how each plan type may benefit the business owner and his or her employees.

ASSUMPTIONS

Two employees earn $40,000 each and contribute 5% of salary
The business owner (under age 50) earns $250,000 and contributes the maximum salary deferral
Employer matching contributions: SIMPLE IRA – 3% | Safe Harbor 401(k) – 4%
Discretionary profit sharing contribution: 6%

The business owner was able to contribute more for herself in the safe harbor 401(k) – $30,200 in SIMPLE IRA versus $48,500 in safe harbor 401(k).

Feature	SIMPLE IRA	Safe Harbor 401(k)
Eligible Employers	Any business with 100 or fewer eligible employees	Any business
Plan Establishment Deadline	October 1	October 1
Maximum Participant Eligibility Restrictions	Earning at least $5,000 in any two preceding years and the expectation to earn $5,000 in the current year	Age 21 or older with one year of service and 1,000 hours worked per year
Maximum Contributions for 2025	Combined employer/employee contributions generally cannot exceed: $33,000 for participants under age 501; $40,000 for participants aged 50-59 or 64+¹; $43,500 for participants aged 60-63. Salary deferral: $16,500¹ (Catch-up for ages 50-59 and 64+: $3,500)¹ (Catch-up for ages 60-63: $5,250) Required employer contribution: 1) 2% non-elective contribution to all eligible employees OR 2) 100% match up to 3% of deferrals Employer has the option to make an additional 10% non-elective contribution to each eligible employee up to $5,100.	$70,000 per person ($77,500 if ages 50-59 or 64+) ($81,250 for ages 60-63) Salary deferral: $23,500 (Catch-up for ages 50-59 or 64+: $31,000) (Catch-up for ages 60-63: $34,750 ) Required employer contribution: 1) 3% non-elective contribution to all eligible employees OR 2) 100% match up to the first 3% of deferrals and 50% of the next 2% contributed (contribute 5% to receive 4% match) Additional optional matching and/or profit sharing contributions available
Distributions	Allowed at any time; however, penalties may apply if under age 59½	Allowed after triggering event; penalties may apply if under age 59½ (or age 55 when separated from service)
Annual 5500 Filling	No	Yes
Additional Considerations	100% vested immediately Lower maintenance cost No loans allowed Potential 25% penalty on pre-59 ½ distributions for the first two years Roth option (check with provider regarding availability)	100% vested for salary deferrals and match; profit sharing may have vesting schedule² Higher maintenance cost Loans permitted Roth option available May offer additional creditor protection depending on state law

¹ Employees may be able to defer a total of $17,600 plus an additional 10% of the catch-up limits (maximum $3,850 for ages 50-59 or 64+) if the employer has 25 or fewer employees or has 26 or more employees and agrees to a 4% matching or 3% non-elective contribution, subject to plan provisions.
² A qualified automatic contribution arrangement (QACA) for the safe harbor 401(k) may require a vesting schedule. Stifel does not provide legal or tax advice. You should consult with your legal and tax advisors regarding your particular situation.

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