Which statement about SIMPLE plan eligibility and structure is true?

Which statement about SIMPLE plan eligibility and structure is true?

• A. A SIMPLE plan can be either a 401(k) plan or an IRA.
• B. The plan requires contributions only from the employer.
• C. Elective contributions are not permitted under a SIMPLE plan.
• D. A SIMPLE plan can only be a SIMPLE IRA.

Answer: (A)

SIMPLE plans come in two forms: a SIMPLE IRA and a SIMPLE 401(k). That flexibility is exactly why the statement is true: a SIMPLE plan can be either a 401(k) plan or an IRA. In terms of structure, eligible employers offer employee salary deferrals, and the plan requires employer contributions as well—either a 2% nonelective contribution for all eligible employees or a matching contribution up to 3% of compensation (depending on the form chosen). This setup means contributions can come from both employees and the employer, so the option claiming contributions are employer-only isn’t correct. Elective deferrals are allowed, so saying they’re not permitted isn’t correct either. And since there are two forms (SIMPLE IRA and SIMPLE 401(k)), it isn’t limited to just an IRA.

SIMPLE plans come in two forms: a SIMPLE IRA and a SIMPLE 401(k). That flexibility is exactly why the statement is true: a SIMPLE plan can be either a 401(k) plan or an IRA.

In terms of structure, eligible employers offer employee salary deferrals, and the plan requires employer contributions as well—either a 2% nonelective contribution for all eligible employees or a matching contribution up to 3% of compensation (depending on the form chosen). This setup means contributions can come from both employees and the employer, so the option claiming contributions are employer-only isn’t correct. Elective deferrals are allowed, so saying they’re not permitted isn’t correct either. And since there are two forms (SIMPLE IRA and SIMPLE 401(k)), it isn’t limited to just an IRA.