From SIMPLE IRA to 401(k): When and Why Growing Businesses Make the Switch
A SIMPLE IRA is a smart retirement plan option for many small businesses. But as companies grow and compete for talent, a 401(k) plan may offer the flexibility, higher contribution limits and investment options needed to attract and retain top performers.
Choosing a retirement plan is one of the most important business decisions an employer can make. Not only is it a valuable tool for attracting and retaining talent, but it's also a great way to create a workplace culture that prioritizes long-term financial security for employees.
Keep in mind, no two retirement plans are the same. And as smaller companies grow and workforce needs evolve, their choice of a retirement plan should evolve as well.
When growing businesses outgrow SIMPLE IRAs
For small businesses, a Savings Incentive Match Plan for Employees (SIMPLE) IRA plan can be an attractive option, as it combines low administrative overhead with savings benefits for employees. The plan enables employers to deduct contributions as a business expense, while providing employees with a clear path toward retirement readiness. SIMPLE IRAs also enable employees to contribute alongside the employer, giving them more control over their retirement savings.
As businesses grow, so do their needs and goals. For example, adding to your head count or expanding into new markets can bring fresh hiring, compensation and retention challenges. SIMPLE IRA plans are well-suited for smaller businesses with straightforward requirements, but they have limitations, including lower contribution limits and fewer investment options.
That's where 401(k) plans come in.
Why 401(k) plans work for growing businesses
401(k) plans are built to scale with businesses during growth periods, while offering greater flexibility, more robust features and long-term value. For many businesses, the decision to move from a SIMPLE IRA to a 401(k) is about recognizing what's needed next.
401(k) plans typically offer features like:
More employer contribution options and flexibility
Employers can choose from matching contributions, profit-sharing or both. And higher contribution limits also mean more room to invest in employees' futures while maximizing tax advantages.
Higher participant and catch-up contribution limits
Employees can potentially reach their retirement goals faster, meaning greater financial peace of mind.
After-tax options
401(k) plans offer Roth options, so employees can contribute after-tax dollars and enjoy tax-free withdrawals.
Customizable vesting schedules
Unlike SIMPLE IRA plans, which require immediate vesting, 401(k) plans allow vesting schedules that reward tenure and loyalty.
Access to loans
Employees can borrow from their account balance if they need to, giving them a financial safety net without derailing their savings.
Potential access to lower-cost investments
Lower fees mean more of an employee's contributions stay invested and working toward their retirement goals.
Retirement plans that scale with your success
At ADP, we offer 401(k) plan solutions designed to grow with your business. And with the strategic advantage of a retirement plan embedded with your payroll data, you'll benefit from time savings, fewer errors and confidence in your compliance — while your employees prepare for the future.
Are you wondering if your business has outgrown its SIMPLE IRA? Reach out to an ADP retirement services specialist or call (800) 432-401K.
ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Questions about how laws, regulations, guidance, your plan's provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor.
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