Its obvious best practice is to keep the DB and web layer on separate machines, so EC2 instance for your IIS and RDS for the database will work fine.
You can also use 2 instances of EC2, one for IIS and one for the database, which will also work.
RDS is probably the best option if you do not take into account the price - without knowing the traffic on your site, how important is the database (i.e. can you afford to sleep for 8 hours? The last 15 minutes on db changes, etc. .d.), there is no right answer ... your budget and your requirements will be decisive factors ...
All that said, I have several low-traffic sites that work with IIS and SQL Server that express on the same EC2 instance and they work just fine - and this is a very affordable and easy way to get to AWS, with the option to improve this configuration as your budget allows and traffic dictates.
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