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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 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.

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SIMPLE IRARoth IRA
Where to openBrokers, banks or other financial institutionsBrokers, banks or other financial institutions
Investment optionsAll 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 limitsNoneIndividuals 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.
Contribute up to $7,000 each if your MAGI is under $230,000 per year; married couples with a MAGI above $230,000 can contribute a reduced amount until contributions are phased out upon reaching a MAGI of $240,000

Contribution limitsEmployees 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 requirementsAvailable 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 contributeEmployers and employeesAnyone with earned income, so long as their income doesn’t exceed a certain threshold
Tax advantagesTax-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 restrictionsWithdrawals 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 73None
FDIC insuranceSIMPLE IRAs that contain bank deposits such as CDs, savings accounts or money market accounts are insured up to $250,000Roth IRAs that contain bank deposits such as CDs, savings accounts or money market accounts are insured up to $250,000
SIPC insuranceSIPC insures cash and securities up to $500,000 at SIPC-member brokersSIPC insures cash and securities up to $500,000 at SIPC-member brokers
Pros
  • Straightfoward and inexpensive to set up and operate
  • Employers and employees contribute
  • Immediate 100% vesting
  • Flexible investment options
  • Tax-free growth and qualified distributions are tax-free
  • No RMDs
  • Withdraw contributions at any time without tax or penalty
  • Flexible investment options
Cons
  • Lower contribution limits for employees than some other retirement plans
  • Limited to smaller companies
  • Must hold account for five years to withdraw funds penalty-free
  • Can’t contribute above a certain income
  • Relatively low contribution limit
Learn more about Roth IRAs
Name Product Minimum deposit Annual fee Retirement account types
SoFi IRA
Finder Score: 4.2 / 5: ★★★★★
SoFi IRA
$0
$0 per month
Roth, Traditional, SEP, Rollover
Trade stocks, options, ETFs, mutual funds and alternative asset funds, with no-cost financial advice and a no-cost robo-advisor.
JP Morgan Personal Advisors
Finder Score: 3.3 / 5: ★★★★★
JP Morgan Personal Advisors
$25,000
0.6% on balances of $25,000 to $249,999

0.5% on balances of $250,000 to $1,000,000

0.4% on balances of $1,000,000+
Roth, Traditional
Ongoing access to an advisory team with personalized, expert-built portfolios. Provider terms & conditions apply
Robinhood Retirement
Finder Score: 4.4 / 5: ★★★★★
Robinhood Retirement
$0
0%
Roth, Traditional, Rollover
Boost your retirement savings with 1% in matching funds on every dollar contributed, transferred or rolled over to a Robinhood IRA.
Vanguard IRA
Finder Score: 4 / 5: ★★★★★
Vanguard IRA
$0
0.3%
Roth, Traditional, SEP, Spousal, Rollover
Save for retirement with Vanguard's commission-free stocks, ETFs and 160+ no-transaction-fee mutual funds.
Interactive Brokers IRA
Finder Score: 4.5 / 5: ★★★★★
Interactive Brokers IRA
$0
N/A
Roth, Traditional, SEP, Rollover
Choose from 6 IRA account options, with access to stocks, ETFs , futures, currencies and more.
Acorns Later
Finder Score: 4.2 / 5: ★★★★★
Acorns Later
$0
$3 per month
Roth, Traditional, SEP
Automatic ETF investing with as little as $5. Annual fee of $3, $5 or $9 per month depending on subscription.
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Finder is not an adviser or brokerage service. Information on this page is for educational purposes only and not a recommendation to invest with any one company, trade specific stocks or fund specific investments. All editorial opinions are our own.

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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