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Roth IRA vs. SIMPLE IRA: Which Plan is Right for You?

By    |   Friday, 22 May 2015 05:21 PM

Amongst IRA plans, it can be overwhelming to decide whether a Roth IRA or a SIMPLE IRA better fits your financial situation and savings. While SIMPLE IRAs are typically set up by an employer of a small business for employees, Roth IRAs are typically set up by individuals and couples planning for their retirement.

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Savings Incentive Match PLan for Employees (SIMPLE IRA)

Employees in small firms that offer no other retirement plans are usually eligible for a SIMPLE IRA. Individuals must have earned a minimum of $5,000 from their employer in their past 2 years of employment and must be planning on making an additional $5,000 the following year.

Though primarily maintained and funded by the employee, employers also contribute between 1-3 percent of an employee’s salary to an employee’s SIMPLE IRA plan. The IRS determines contribution limits on an annual basis.

SIMPLE IRAs are beneficial for employees of small firms to gain retirement benefits through their employer. Earning accumulations in a SIMPLE IRA account are tax-deferred and contributions stay on a pre-tax status.

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Roth IRA

Eligibility for a Roth IRA is contingent upon income and age. Roth IRAs are for individuals with earned incomes including compensation in the form of a salary, wage, tip, commission, self-employment income, taxable alimony, or military differential pay. Income as a result of investment, pension, or rental property does not qualify for a Roth IRA.

Individuals cannot contribute beyond their earned income within a given year to a Roth IRA. Additional income limits for Roth IRA are determined by marital and filing status.

Roth IRAs offer numerous benefits to eligible candidates. The Roth IRA offers greater flexibility than other retirement plans because individuals can withdraw funds from the plan, without penalty, at any time. However, a person must have their Roth IRA for a minimum of five years and be 59 and a half or older in order for their contributions to be entirely tax- and penalty-free. Roth accounts also do not require holders to withdraw money from their account; this allows the IRA to grow continuously and to be passed down to an heir income-tax free.

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Amongst IRA plans, it can be overwhelming to decide whether a Roth IRA or a SIMPLE IRA better fits your financial situation and savings.
Roth IRA, SIMPLE IRA, which, plan, right
Friday, 22 May 2015 05:21 PM
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