While a SIMPLE-IRA holds tremendous appeal to small businesses that operate under a tight cash flow, it may be restrictive for more established companies, regardless of their size.

For one, annual SIMPLE-IRA employee contributions are capped at $6000, in contrast to 401(k) plans that have a potential maximum employee contribution limit of $10,000.

In addition, whereas employer contributions vest immediately (thereby giving the employee 100% ownership to all funds), 401(k) plans allow companies to use their own discretion. As a result, 401(k)s provide companies with the opportunity to build incentives into their plans. For instance, a company that is concerned about retaining employees can choose to match according to a vesting schedule.