3 Disadvantages of a Simple 401k

The simple 401k is a type of retirement plan that is available for employers to offer their employees. While there are some benefits for this type of plan, it also has a few drawbacks. Here are some of the disadvantages of a simple 401k.

1. Limitations

One of the drawbacks with this type of plan is that it is only available to small companies. If you are a larger company, you will not have the option to utilize this plan. You must have fewer than 100 employees to use this plan.

2. Lower Limits

Another one of the disadvantages of a simple 401k is that it has lower contribution limits for employees. With this plan, you can only contribute a maximum of $11,500 per year. With a traditional 401k, you would be able to contribute as much as $16,500 per year. This prevents you from putting back money for your retirement and the difference between the two plans can be staggering, once you consider compounded interest.

3. Immediate Vesting

If you are an employer, you may not like the immediate vesting that comes with the simple 401k. As soon as you put the money in the account for employer matches, it is available to employees. The money changes names very quickly.

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