Can an Individual Make Both Traditional IRA and SIMPLE IRA Contributions?

by Maggie McCormick

A Savings Incentive Match Plan for Employees individual retirement account, or SIMPLE IRA, allows small business owners to set up a retirement plan for employees without the paperwork involved in establishing a 401k plan. It's possible to make contributions to a SIMPLE IRA, traditional IRA and a Roth IRA at the same time, although it's not always wise to do so.

SIMPLE IRA Basics

If your employer offers SIMPLE IRA plans, you are eligible as long as you make at least $5,000 per year and have made at least this much during two previous years - they do not have to be consecutive. Choose how much you want to set aside as your contribution and the employer will deduct this from your paycheck before you pay taxes. If it chooses to, the company can match your contribution up to 3 percent. You are able to select which types of investments you want from a list of options.

Traditional vs. Roth IRA

The traditional and Roth IRA plans are separate from a SIMPLE IRA, and are not employer-sponsored. With a traditional IRA, you use pretax dollars now, but will have to pay taxes when you withdraw the money. With a Roth IRA, it is taxed now, but you will not pay taxes when you withdraw the money. If you have a SIMPLE IRA through your employer, the amount that you can deduct from your taxes for a traditional IRA is reduced.

Contribution Limits

For 2011, the maximum contribution for a SIMPLE IRA is $11,500 for those under 50, and $14,000 for those 50 and older. The combined limit for a traditional and Roth IRA is $5,000 per year for those under 50 and $6,000 per year for those 50 and older. For example, you can fully fund either a Roth or a traditional IRA with $5,000, or you can fund each with $2,500. But you can't have $5,000 in each account.

Finding a Mix

It's up to you to determine how much money you can save in each type of IRA. You may want to consider the tax benefits of the SIMPLE IRA and traditional IRA now in regard to the tax benefits of a Roth IRA during retirement. Additionally, it's easier to take a penalty free withdrawal from a Roth or traditional IRA for things that you might need later in life, such as a down payment on a home or college tuition for your child.

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