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SIMPLE IRA vs. Roth IRA: How do they compare?
Key differences in contribution limits, investment options and tax advantages.
A savings incentive match plan for employees (SIMPLE) individual retirement account (IRA) and Roth IRA are two investment accounts that give you tax benefits to save for retirement.
However, these two accounts vary in terms of contribution limits and who they’re best for. Find out more about how these accounts differ to see which is right for you.
SIMPLE IRA vs. Roth IRA: A quick comparison
| SIMPLE IRA | Roth IRA | |
|---|---|---|
| Where to open | Brokers, banks or other financial institutions | Brokers, banks or other financial institutions |
| Investment options | All assets are permitted inside an IRA except collectibles and life insurance The IRA custodian determines available investment options | All assets are permitted inside an IRA except collectibles and life insurance The IRA custodian determines available investment option |
| Income limits | None | Individuals filing as single and head of household. Contribute up to $7,000 if your 2024 modified adjusted gross income (MAGI) is under $146,000; individuals with a MAGI above $146,000 can contribute a reduced amount until contributions are phased out upon reaching a MAGI of $161,000 Married couples filing jointly. |
| Contribution limits | Employees can contribute up to $16,000 in 2024 Employees 50 and over can contribute an additional $3,500 in catch-up contributions Employees making elective salary reductions under another employer plan in 2024 are limited to $23,000 in salary reduction contributions across all their plans | $7,000 for those under age 50 $8,000 for those aged 50 and over |
| Eligibility requirements | Available to small business of 100 or fewer employees Employer cannot have any other retirement plan | No age requirements, but you need earned income to contribute Income limits apply |
| Who can contribute | Employers and employees | Anyone with earned income, so long as their income doesn’t exceed a certain threshold |
| Tax advantages | Tax-deferred savings Employers can deduct all contributions made to employees’ SIMPLE IRAs Employee contributions reduces taxable income | Earnings grow tax-free Qualified withdrawals are tax-free |
| Withdrawal restrictions | Withdrawals before age 59.5 generally incur a 10% additional tax Distributions received during the 2-year period beginning on the date on which you first participated in your employer’s SIMPLE IRA plan incur a 25% penalty instead of 10% | Withdrawals of earnings before age 59.5 from a Roth IRA you’ve held less than five years will incur taxes and penalties (exceptions apply) Withdrawals of earnings after age 59.5 from a Roth IRA you’ve had more than five years will be subject to taxes but not penalties |
| Required minimum distributions (RMDs) | Must begin taking RMDs once the account holder is age 73 | None |
| FDIC insurance | SIMPLE IRAs that contain bank deposits such as CDs, savings accounts or money market accounts are insured up to $250,000 | Roth IRAs that contain bank deposits such as CDs, savings accounts or money market accounts are insured up to $250,000 |
| SIPC insurance | SIPC insures cash and securities up to $500,000 at SIPC-member brokers | SIPC insures cash and securities up to $500,000 at SIPC-member brokers |
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| Learn more about Roth IRAs |
SIMPLE IRA vs. Roth IRA: Which one’s better?
SIMPLE IRAs and Roth IRAs are both tax-advantaged retirement accounts in which individuals can invest in a range of assets, but their tax structures and who can contribute are what differentiate these accounts the most.
When to consider a SIMPLE IRA
A SIMPLE IRA may be a good option if you:
- Are a small business. SIMPLE IRAs are available to small businesses of 100 or fewer employees.
- Want to set aside retirement savings for yourself and your employees. Without the startup and operating costs of a 401(k) and relatively high contribution limits, a SIMPLE IRA can be a good option if you want to help employees save for retirement.
When to consider a Roth IRA
Consider a Roth IRA if you:
- Want an IRA outside of workplace savings. Contribute to your own individual IRA in addition to workplace savings. Contribute up to $7,000 in total across all your Roth IRAs and traditional IRAs in 2024.
- Want matching contributions. Robinhood offers IRA matches. Robinhood will match up to 3% on IRA contributions when you subscribe to Robinhood Gold or 1% when you don’t.
The similarities between SIMPLE IRAs and Roth IRAs
While both SIMPLE IRAs and Roth IRAs are two types of IRAs, they differ greatly in terms of contribution limits, tax structure and who can contribute.
SIMPLE IRAs and Roth IRAs share these similarities:
- Trading platforms. If you open a SIMPLE IRA or Roth IRA with a broker, you’ll have access to the same trading platform and available tools.
- Investment options. Invest in stocks, bonds, exchange-traded funds (ETFs), mutual funds and more in SIMPLE IRAs and Roth IRAs.
SIMPLE IRA vs. Roth IRA: Where to open these accounts
SIMPLE IRAs and Roth IRAs are available at many banks, brokers and other financial institutions. However, while Roth IRAs are a common account type, not every bank or broker offers SIMPLE IRAs. The best stock trading apps offer SIMPLE IRAs, Roth IRAs and other account types, letting you invest for different goals all under one roof.
Alternatives to a SIMPLE IRA and a Roth IRA
While SIMPLE IRAs and Roth IRAs are great options to trade and invest, other accounts may be more appropriate depending on your goals:
- SEP IRA. Similar to a SIMPLE IRA, this account only lets employers contribute to traditional IRAs set up for employees. Contribute up to 25% of the employee’s total compensation or a maximum of $69,000 in 2024, whichever is less.
- Solo 401(k). This is structured as a traditional 401(k) plan, but it’s designed for a business owner with no employees or that person and their spouse. Contribute up to $69,000 in 2024, with a catch-up contribution of an extra $7,500 for those 50 or older.
Compare brokerages that offer IRA accounts
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Frequently asked questions
Is a Roth IRA better than a SIMPLE IRA?
A Roth IRA is not necessarily better than a SIMPLE IRA. Individuals open Roth IRAs to save for their retirement, while employers open SIMPLE IRAs for their employees.
Can I have both a SIMPLE IRA and a Roth IRA?
Yes, you can have both a SIMPLE IRA and a Roth IRA.
What are the disadvantages of a SIMPLE IRA?
Two disadvantages of SIMPLE IRAs include their restriction to smaller companies and lower contribution limits for employees than some retirement plans.
Should I convert my SIMPLE IRA to a Roth?
Convert your SIMPLE IRA to a Roth IRA if it suits your financial situation and goals.
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