Simply put, Roth IRAs are particularly good for people who expect to pay a fairly high tax rate when they retire. That includes many people who are self-employed, such as small business owners who could make money investing in gold or withdraw money from their companies later in life. You are eligible for a SIMPLE IRA as a self-employed person or if you have a business with up to 100 employees. Maintaining an SEP IRA is easier than an individual 401 (k) because it involves a low administrative burden, with limited paperwork and no annual reporting to the IRS, and has equally high contribution limits. Plus, you can even convert your IRA into gold if you choose to do so. An SEP allows you to make pre-tax contributions in a similar way to a traditional IRA, reducing your taxable income rather than after-tax contributions, such as a Roth IRA.
The individual 401 (k) plan has even another more subtle benefit that may make it a better choice than the SEP IRA for people with low incomes or for those who use their business as a side job. If you exceed them, you won't be able to contribute at all to a Roth IRA or make tax-deductible contributions to a traditional IRA. An SEP IRA allows a company to make employer contributions to employees, including the self-employed. Even if you participate in a retirement plan as a self-employed person (including the SEP IRA or SIMPLE IRA), you can still participate in a traditional IRA or a Roth IRA.
A SIMPLE IRA may be easier for an employer to set up than many 401 (k) plans, which have complex rules. SIMPLE IRAs offer a low administrative burden, a higher contribution limit than traditional or Roth IRAs, and the ability to contribute more money to your own retirement account than to those of your employees. Self-employed workers have several plan options, including defined contribution plans, such as an individual 401 (k) plan, SEP IRA, and SIMPLE IRA. By contrast, the SEP IRA allows you to contribute at a rate of 25 percent, so you'd have to earn much more to reach the same level of contribution.
You'll enjoy all the benefits of an IRA, including tax-deferred growth, and you'll be able to take advantage of what many experts consider to be the best functioning retirement account: the Roth IRA. Traditional IRAs and Roth IRAs aren't exclusive to the self-employed, but people who work independently or who own their own business can contribute to these plans. While small business owners enjoy a little more flexibility when it comes to determining their retirement options, calculating whether to invest in an individual Roth retirement plan or a simplified IRA for employees (or both) depends on how each fits your personal retirement plan preferences. It's true that the ability to make contributions to the Roth IRA is phased out or completely eliminated if your modified adjusted gross income (MAGI) exceeds certain levels.
Roth IRAs only allow after-tax contributions instead of tax-deductible contributions, as in traditional IRAs.