Can a self-employed person (Sole-Prop) maximize a Simple Plan and, in additon, maximize a ROTH IRA, for the same year?
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SIMPLE Plan Limitations: An employer (or self-employed) can set up a SIMPLE plan if the employer does not maintain any other qualified plan. Since a Roth IRA is not considered a qualified employer plan, the Roth IRA does not disqualify the employer from having a SIMPLE plan.
Traditional IRA Limitations: If an individual (including a self-employed individual) is an active participant in an employer-sponsored pension plan, then a deduction for a traditional IRA may be phased-out when AGI reaches a certain amount. Being a participant in a SIMPLE plan IS being an active participant in an employer-sponsored pension plan.
Roth IRA Limitations: However, the active participation limitation rules only apply to traditional IRAs. They do not apply to Roth IRAs. Instead, Roth IRA contributions are subject to phase-out rules at a certain level of AGI regardless of whether or not the taxpayer is an active participant in an employer-sponsored pension plan. So in the case where a taxpayer has both a Roth IRA and a SIMPLE plan, his/her Roth IRA contributions are subject to phase-out rules regardless of whether or not there is a SIMPLE plan.
Thus, a Roth IRA does not limit the ability of a self-employed setting up a SIMPLE plan, and a SIMPLE plan has no bearing on whether the taxpayer can contribute to a Roth. So to answer your question, assuming all other qualifications are met for making SIMPLE and Roth contributions, a self-employed could max out both a SIMPLE and a Roth in the same year.
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