Other Types of 401Ks: Starter, Solo, and SIMPLE

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Other Types of 401Ks: Starter, Solo, and SIMPLE

The 401K is a versatile type of retirement plan that can adapt to different needs. Beyond the traditional and Roth versions, there are more. Let’s look at three of them.

Starter 401(k)

A new innovation in the world of 401k plans, the starter 401k is a stripped-down, one-size-fits-all version. It does not involve employer contributions, unlike the traditional version: only employees can contribute. It also has lower employee contribution limits ($6,000, with a $1,000 catchup contribution allowed for those 50 or older.) Employees eligible for the starter 401k are automatically enrolled into the plan at a contribution rate of 3–15% (as set by the employer) of their salary.

It has benefits for employers, too: fewer IRS compliance requirements and easier and cheaper administration. A starter 401k also satisfies retirement mandate requirements that have been popping up in many states. Generally, employers who do not already offer a retirement plan are eligible to offer starter 401ks.

Since the contributions come from employee deferrals, vesting is immediate and 100%.

Solo 401k

If you’re your own boss and want to fund your retirement, welcome to the solo 401k. Solo 401ks have the same rules, requirements, and contribution limits as traditional 401k plans, with the difference being that they cover a business owner (or that owner and a spouse) with no employees. The business owner is both employer and employee.

You can make contributions to the plan in both capacities. A solo 401(k) plan generally must file Form 5500-EZ annually if it has $250,000 or more in assets at the end of the year. Keep in mind that rules will change if you should hire any employees.

IRS Publication 560, Retirement Plans for Small Business, has more information, including worksheets and tables to help you compute contributions.

SIMPLE 401(k) plans

Employers may set up SIMPLE 401(k) plans for their employees. The SIMPLE (which stands for "savings incentive match plan for employees") is an alternative to traditional 401(k) plans. The SIMPLE plan is much easier to administer, but it has greater limitations.

For 2025, the employee may defer up to $16,500 under a SIMPLE 401(k), compared to $23,500 under a regular 401(k). Employees over 50 may make an additional "catch-up" contribution of $3,500. Under a SIMPLE 401(k), the employer must match up to 3 percent of the employee elective deferrals. Alternatively, the employer may elect to make a 2 percent (non-matching) contribution of compensation to all eligible employees, whether they defer salary or not.