Generation 42

Archive for November, 2009

The plans known as 401(k), 403(b), and SIMPLE allow you to contribute a percentage of your salary, usually around 15 percent, into the plan. A 401(k), which takes its exciting name from a selection in the tax code, is an all-around plan that almost any company can enter into. A 403(b) plan is what you have if you work for a nonprofit organization, such as a hospital, university, or research organization. The 401(k) and 403(b) plans work in much the same way; if I refer to a 40 1(k) plan here, it will also apply to you if you have a 403(b) plan.
A SIMPLE is a retirement plan that took effect January 1, 1997. The acronym stands for savings incentive match plan for employees. This plan can be adopted by employers who employ one hundred or fewer employees with at least $5,000 in compensation for the previous year and who do not maintain another employer-sponsored retirement plan. The SIMPLE is not subject to the same rigorous rules as the 401(k), so many employers may opt to go with this kind of plan, although as you’ll see it also has its limitations.
The contribution and withdrawal rules for Simple are just a little different, but the same basic concepts apply.