Which statement about SIMPLE plans is true?

Which statement about SIMPLE plans is true?

• A. The employee may not make elective contributions.
• B. An IRA must be established.
• C. The plan is subject to the nondiscrimination rules applicable to other qualified plans.
• D. All contributions to an employee's account are fully vested.

Answer: (D)

In SIMPLE plans, vesting is immediate for all contributions. This means employee elective deferrals and any employer contributions (such as the matching or none) belong to the employee as soon as they’re made, with no vesting schedule. That’s why the statement about all contributions being fully vested is true. Keep in mind: employees can contribute through elective deferrals in a SIMPLE plan, so the claim that contributions aren’t allowed is false. A SIMPLE plan isn’t limited to IRAs; it can be implemented as a SIMPLE IRA or a SIMPLE 401(k), so it’s not correct to say an IRA must be established in every SIMPLE plan. Also, SIMPLE plans aren’t governed by the same nondiscrimination testing as typical 401(k) plans, so they aren’t subject to the exact nondiscrimination rules that apply to other qualified plans.

In SIMPLE plans, vesting is immediate for all contributions. This means employee elective deferrals and any employer contributions (such as the matching or none) belong to the employee as soon as they’re made, with no vesting schedule. That’s why the statement about all contributions being fully vested is true.

Keep in mind: employees can contribute through elective deferrals in a SIMPLE plan, so the claim that contributions aren’t allowed is false. A SIMPLE plan isn’t limited to IRAs; it can be implemented as a SIMPLE IRA or a SIMPLE 401(k), so it’s not correct to say an IRA must be established in every SIMPLE plan. Also, SIMPLE plans aren’t governed by the same nondiscrimination testing as typical 401(k) plans, so they aren’t subject to the exact nondiscrimination rules that apply to other qualified plans.