Types

• As of 2010, a SIMPLE IRA has a much higher contribution limit than a Roth IRA. The contribution limit is $11,500 ($14,000, if you are 50 or older). The Roth IRA, meanwhile, has a contribution limit of $5,000 ($6,000, if you are 50 or older).
  
  

Significance

• The significance of a SIMPLE IRA is that the plan is an employer-sponsored retirement plan. These plans offer an employer match and pretax contributions. The Roth IRA is not an employer-sponsored plan. Instead, it's an individual plan. Contributions are made after-tax and withdrawals are tax-free.
  
  

Benefit

• The benefit of being able to make contributions to both a SIMPLE and a Roth IRA at the same time is that you take advantage of both types of IRAs. You get the advantage of deferring current taxes on your contributions through the SIMPLE IRA, and you get the benefit of eliminating taxes on the Roth IRA distributions.
  
  

Disadvantage

• The disadvantage to having both types of IRAs is that the Roth IRA contribution limits won't affect the SIMPLE IRA limits, but the SIMPLE IRA limits will affect the Roth IRA limits. This means that if you contribute $5,000 to your SIMPLE IRA, you won't be able to contribute any money to the Roth.
  
  

Considerations

• When deciding which IRA to contribute to, keep in mind that you are getting an employer match from your SIMPLE IRA. Even though you pay tax on the distributions from a SIMPLE, the employer match may make contributing to a SIMPLE worth it. On the other hand, if tax rates rise significantly, you may be better off contributing to the Roth.