Compare IRA Plans, Roth vs. Traditional ... Simple vs. SEP (see below)

  Roth IRA Traditional IRA
Contribution Limits
  •  $5000 Annually if under age 50
  • $6000 Annually for ages 50 and up, serving as a catch-up contribution for those at least 50 by year end 
  •  $5000 Annually if under age 50
  • $6000 Annually for ages 50 and up, serving as a catch-up contribution for those at least 50 by year end 
Deductibility Contributions are never deductible Contributions may be deductible, depending on tax-filing and active participant statuses, as well as income amount
Age Limitation No age limitations on contributions No contributions allowed after or during the year the taxpayer attains age 70 1/2
Tax Credit Available for 'saver's tax credit'
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 Available for 'saver's tax credit'
Income Caps for Contributions Income caps may prevent taxpayers from contributing No income caps will prevent taxpayers from contributing
Treatment of Earnings on IRA Investments Earning grow tax-deferred, Qualified distributions are tax-free, including distribution of earnings  Earnings grow on a tax-deferred basis, earnings are added to the taxable income for the year distributed
Distribution Rules Distributions may be taken at any time. Distributions are tax-free, and penalty-free if Qualified  Distributions may be taken at any time. Distributions will be treated as ordinary income and may be subjected to an early-distribution penalty if withdrawn while the owner is under the age of 591/2
Required Minimum Distribution (RMD) Owners are not subject to the RMD rules, however, beneficiaries are subject to the RMD rules IRA owners must begin distributing minimum amounts beginning April 1 of the year following the year they turn age 701/2  beneficiaries are also subject to the RMD rules




Simple vs. SEP


Simple IRASEP IRA
Best For...
  • Employers, including self-employed with fewer than 100 employees
  • Must meet certain compensation tests
  • Must not maintain any other qualified plan
  • Self-employed individuals with no employees
  • Small businesses with employees who meet certain compensation and tenure requirements
Features
  • Easy to administer, low cost
  • No IRS reporting required
  • Largely funded by employee contributions, but limited employer contributions required
  • Easy to administer, low cost
  • No IRS reporting required
  • No annual funding required
  • Employer must contribute to eligible employee accounts in any year the plan is funded
Tax BenefitsEmployer:
   Contributions made by an employer are tax deductible

Employee:
   All contributions are made on a pre-tax basis and earnings accumulate tax-deferred


Employer:
   Within IRS limits, contributions into a SEP IRA are generally 100% tax deductible for the employer.  SEP IRA contributions are made by the employer to the employer’s own SEP and made to the SEP account of each eligible employee.  Investment earnings grow tax-deferred
Early Withdrawals
  • Withdrawals prior to age 591/2 are permitted
  • May be subject to 25% penalty if taken within the firsst two years of participating in a Simple IRA
  • 10% penalty maay apply for withdrawals prior to age 591/2, in addition to ordinary income taxes
  • Withdrawals prior to age 591/2 are permitted, but may be subject to a 10% penalty plus ordinary income taxes
Contribution LimitsEmployer
  • Option 1: Match up to 3% of each employee’s compensation or $11,500, whichever is less.
  • Option 2: Contribute 22% of each eligible employee’s compensation up to $5000 for 2012

Employee:
  • $11,500 limit ($14,00 if over age 50 by 12/31
Employer
  • No IRS reporting required
  • Up to 25% of employee’s taxable compensation ($50,000 maximum for 2012)
  • 20% limit for self-employed individuals based on net earnings
  • Employer has flexibility to determine the annual contribution amount and timing

Employee:
  • All contributions for a SEP IRA are funded by the employer
Contribution Deadlines
  • Employer contributions must be made by the employer’s tax return filing deadline, including valid extensions, for employer to receive current deduction.
  • Employer must make employee elective-deferral contributions within 30 calendar days after the last day of the month that they were withheld.
  • New Simple IRA accounts must generally be established by 10/01 to be effective for that tax year.
  • Contributions must be made by the by the employer’s tax filing deadline, including valid extensions, for the employer to deduct contributions for that tax year.