MENU
EDU Articles

Learn about investing, trading, retirement, banking, personal finance and more.

Ad is loading...
Help CenterFree ProductsPremium Products
IntroductionMarket AbbreviationsStock Market StatisticsThinking about Your Financial FutureSearch for AdvisorsFinancial CalculatorsFinancial MediaFederal Agencies and Programs
Investment PortfoliosModern Portfolio TheoriesInvestment StrategyPractical Portfolio Management InfoDiversificationRatingsActivities AbroadTrading Markets
Investment Terminology and InstrumentsBasicsInvestment TerminologyTradingBondsMutual FundsExchange Traded Funds (ETF)StocksAnnuities
Technical Analysis and TradingAnalysis BasicsTechnical IndicatorsTrading ModelsPatternsTrading OptionsTrading ForexTrading CommoditiesSpeculative Investments
Cryptocurrencies and BlockchainBlockchainBitcoinEthereumLitecoinRippleTaxes and Regulation
RetirementSocial Security BenefitsLong-Term Care InsuranceGeneral Retirement InfoHealth InsuranceMedicare and MedicaidLife InsuranceWills and Trusts
Retirement Accounts401(k) and 403(b) PlansIndividual Retirement Accounts (IRA)SEP and SIMPLE IRAsKeogh PlansMoney Purchase/Profit Sharing PlansSelf-Employed 401(k)s and 457sPension Plan RulesCash-Balance PlansThrift Savings Plans and 529 Plans and ESA
Personal FinancePersonal BankingPersonal DebtHome RelatedTax FormsSmall BusinessIncomeInvestmentsIRS Rules and PublicationsPersonal LifeMortgage
Corporate BasicsBasicsCorporate StructureCorporate FundamentalsCorporate DebtRisksEconomicsCorporate AccountingDividendsEarnings

How Does a 401(k) Compare With Other Retirement Plans?

There are several types of retirement plans that employers can provide, but 401(k)s are one of the most popular.

Other employer-sponsored retirement plans include SIMPLEs, SEPs, and various kinds of defined benefit plans. SIMPLE IRAs are sometimes called SIMPLE 401(k)s, because they operate under the same laws as Safe Harbor 401(k)s. They both are primarily employee-funded, and have rigid standards for employer contributions.

SIMPLEs cost less to set up and maintain, in general, but they do not allow for as many contributions. They also cannot be combined with a profit-sharing plan the way that 401(k)s can.

SEPs are entirely employer-funded, and do not allow any employee contributions. Combining a Safe Harbor 401(k) with a non-discriminating profit-sharing plan is like combining a SIMPLE and a SEP.

In a SEP, employers must contribute the same percentage of compensation to each employee’s account. Profit-sharing plans have more flexibility and can discriminate using a few accepted criteria. Defined benefit plans could be a traditional pension or salary continuation plan, among other forms.

These use calculations based on current salary or elective deferred compensation amounts, and apply a discount rate to determine the exact benefit they will receive in retirement. These require rigorous auditing and oversight that is usually more expensive than a 401(k) plan, and employees do not have any market upside potential.

401(k)s are highly customizable, and it is easy to see why they are a popular choice for employers.

Ad is loading...