Roth IRA vs. Simple IRA

The benefit of the Simple IRA is that you can put away a whole lot more money per year. If you hit the max on the Simple, consider a SEP IRA, which has even higher limits on how much you can put away. This is probably one of the top 3 best deductions available from the IRS. Another consideration is that the Roth IRA has a cap on income, and if you exceed that, you cannot use it. The traditional also has an income cap. If you exceed it, you can still use the IRA, you just don't get the tax benefit.

-john-

As John said, I would consider a SEP over a SIMPLE. Higher limits, no two year restrictions, low expenses, etc...

I appreciate the insights. Is it too late for me to set up a simple IRA and take the deduction on my 2006 taxes or do I have until tax day? Unfotunately, I won't be able to max out the Simple IFA, and I still fall within the income requirements to be able to do a Roth. It still sounds as if you're saying to put as much as possible into the Simple IRA, though, and forget about the Roth at this time.

Paul

With an accounting trick, a SIMPLE-IRA does have the same limit as a SEP-IRA for the self-employed. 10K employee contributions and then increase employer matching to hit the max 44K total. Obviously, it would be silly to go around this roundabout way to make it match a SEP plan. Most companies probably charge more for the SIMPLE plan -- looking at Vanguard, they charge $10 per fund unless fund amount is >

5K for a SEP versus $25 per fund unless total plan assets is > 100K for a SIMPLE.

Deadline for SEP is date of company tax filing. So if you are a sole proprietor, 4/15 is the date.

Making a SEP contribution would drop your MAGI to a point where you may qualify for a Roth IRA.