Q&A: More Into Simple?

Q:

I make about 60K per year. My boss puts in 15% of my annual income in a Simple IRA (all at once). I've never contributed any of my own money, but would like to start doing that if possible. Is there a maximum amount that can go into a Simple IRA each year? I'm at a point where I actually have a few extra dollars each month and would like to start aggressively saving for retirement. I listen to your show when I can and hear about Roth IRAs. Any advice for a pretty naïve investor?

A:

The maximum contribution to a Simple IRA is currently $12,500, so you still have room to increase the amount you put in the plan. However, since Simple IRAs use pre-tax dollars and therefore are subject to full taxation in retirement (as well a required minimum distributions starting at age 70 1/2), it might be wise to give yourself a tax-free, more flexible option in retirement. 

For this I would suggest contributing up to $5,500 per year ($6,500 of over 50 years old) in a tax-free Roth IRA with Vanguard or Schwab. This allows some of your retirement money to remain invested well beyond 70 1/2 and could also give you the opportunity to invest in asset classes unavailable in your Simple plan.