What Is the Difference Between a Simple and Roth IRA?

Individual retirement accounts provide tax-sheltered savings. Individuals can create some IRAs, while only employers can create others including savings incentive match plans for employees (SIMPLE plans).

Eligibility

Individuals with modified adjusted gross incomes below the annual limits for their filing statuses can establish Roth IRAs. The MAGI limits vary with filing status. For example, in 2010 if you are single, you cannot contribute to a Roth IRA if your MAGI exceeds $120,000. Only employers of fewer than 100 employees can create SIMPLE IRAs, on behalf of those employees.

Benefits

Roth IRAs offer after-tax savings; you cannot deduct contributions from your taxes, but you can take qualified withdrawals tax-free. You exclude SIMPLE IRA contributions from your taxable income, but you pay tax on your withdrawals.

Contribution Limits

SIMPLE IRA plans have significantly larger contribution limits than Roth IRAs. As of 2010, the Internal Revenue Service states that you can contribute up to $11,500 ($14,000 if you are 50 or older) to a SIMPLE IRA but only $5,000 ($6,000 if you are 50 or older) to a Roth IRA. In addition, employers can contribute to SIMPLE IRAs on behalf of employees, but not Roth IRAs. As of 2010, the IRS permits employer contributions up to the smaller of $49,000, or 25 percent of the employee's compensation.

References

• Internal Revenue Service: Publication 590 (Chapter 2)
• Internal Revenue Service: Retirement Plans FAQs Regarding SIMPLE IRAs