When business owners evaluate retirement plan options, two common choices are the 401(k) and the SIMPLE IRA (Savings Incentive Match Plan for Employees). While the SIMPLE IRA is often appealing for very small businesses due to its simplicity, the 401(k) generally provides more flexibility, higher contribution limits, and stronger long-term benefits for both employers and employees.
Below, we’ll break down why a 401(k) is typically the superior choice, including contribution maximums, employer flexibility, and important deadlines for converting a SIMPLE IRA into a 401(k).
Key Advantages of a 401(k) Over a SIMPLE IRA
A primary advantage of a 401(k) is the much higher contribution ceiling. Employees can defer significantly more of their salary, and employers can make discretionary contributions up to the annual IRS limits.
| Plan Type (2025) | Employee Deferral Limit | Catch-Up (Age 50+) | Employer Contribution | |
| 401(k) | $23,500 | $7,500 | Up to 25% of current IRS compensation limit | |
| SIMPLE IRA | $16,500 | $3,500 | Mandatory match (3%) or 2% nonelective |
401(k) plans can include:
SIMPLE IRAs, by design, lack these customization options. In addition, 401(k) plans may be designed to meet your company’s specific goals and can be updated as your business grows and changes over time.
Because of the higher contribution limits and employer discretion, 401(k) participants can build wealth faster than those in SIMPLE IRAs. This makes the 401(k) particularly advantageous for business owners seeking to maximize their own retirement savings.
Deadlines to Convert from a SIMPLE IRA to a 401(k)
If your business already has a SIMPLE IRA and you’d like to switch to a 401(k) effective January 1, 2026, employers must notify employees of any changes by November 2, 2025.
While a SIMPLE IRA may be suitable for very small or new businesses, the 401(k) offers greater savings potential, plan flexibility, and strategic advantages for business owners and employees alike. With higher contribution limits and advanced plan features designed to meet your company’s goals, a 401(k) is often the better long-term choice.
For businesses currently using a SIMPLE IRA, careful planning around the November 2 conversion deadline ensures a smooth transition to the more powerful 401(k) platform.
Ready to explore whether a 401(k) is right for your business? Contact our team today to review your retirement plan options and map out the best strategy for your company’s future.