Can an individual contribute to both a Roth IRA and a Traditional IRA in the same year?
Yes, an individual can contribute to both a Roth IRA and a Traditional IRA in the same year. The total contribution into both cannot exceed $5,500 for individuals under 50, and $6,500 for those 50 and over. For example, a person can contribute $2,500 into a Traditional IRA and $3,000 into a Roth IRA for the 2016 tax year. Additional conditions must meet IRS requirements as well.
There are a number of factors that should be considered when deciding between these IRA contributions, or potentially a combination of both:
- Whether or not individuals are able to make retirement plan contributions (401(k), 403(b), or other qualified plan) through their company
- Income limits for Roth IRA contributions
- The current tax rate
- Roth IRA and Traditional IRA characteristics
Retirement plan eligibility
If individuals can contribute into their company’s retirement plan (401(k), 403(b), etc.), they should choose these first. Once they make that maximum contribution into their retirement plans, they may want to consider making IRA or Roth IRA contributions. I make this suggestion because company retirement plans have higher contribution limits (401(k)s, for example, carry a current maximum of $18,500) than IRAs / Roth IRAs ($5,500). Retirement plan contributions reduce an individual’s income taxes. If you are unsure whether your company offers a retirement plan, you should contact your HR department or your boss.
If your company does not have a retirement plan, consider the factors below to determine what is right for you.
Income Limits for Roth IRA Contributions
Currently, individuals can make Roth IRA contributions if they have earned income and their taxable compensation is less than $131,000 for single filing or $193,000 for married couples.
Current tax rate
If not eligible to make a retirement plan contribution, an individual can make a tax-deductible IRA contribution, which will reduce his or her income tax. There is no rule of thumb to follow, but I would suggest that those in the 25% tax bracket or higher should make a tax-deductible IRA contribution instead of a Roth IRA contribution. (The 25% tax bracket applies to individuals earning $37,4510 to $90,750.)
The big advantage in making Roth IRA contributions if you are young and don’t mind paying a little more in taxes? Contributions into a Roth IRA grow tax free and all distributions (withdrawals) are also tax free.
Roth IRA and Traditional IRA Characteristics
Contributions into a Roth IRA are after-tax. As mentioned above, assets in these accounts grow tax free and all distributions are also tax free. Contributions into a Traditional IRA, on the other hand, are generally tax deductible, while all contributions and earnings are tax deferred. Once distributions are made, these are taxable. IRAs are required to make distributions to account holders, beginning when they reach the age of 70.5 years.
Contributions into Roth IRAs generally favor investors who are younger, with lower taxable incomes. For example, a Traditional IRA contribution is worth more to a person who earns $100,000 per year than a person who earns $35,000. That’s because the $5,500 contribution saves approximately $1,158 in federal income taxes for the person earning $100,000—and saves $752 for the person earning $35,000. In short, an individual earning $35,000 should consider contributing into a Roth IRA instead.
Yes, an individual can contribute to both a Roth and traditional IRA up to a maximum of $5,500 ($6,500 if over age 50), but not each. For example, you could contribute $3,000 to a Roth IRA and $2,500 to a traditional IRA (for a total of $5,500 if you're under age 50). However, IRA contributions (whether deductible or non-deductible) are only able to be made with earned income (money derived from paid work). Earned income includes:
Even if you have earned income, and depending if you're single or married, corresponding income limits will determine if the traditional IRA is fully deductible, partially, or completely phased out.
If you're single or married and not covered by an employer-sponsored plan, your contributions will be fully deductible no matter what your income is. However, if you're married and both of you are covered by an employer-sponsored plan, contributions can be deducted in accordance with your Modified Adjusted Gross Income (MAGI). In 2016:
- If your MAGI is $61,000 or below, your contribution is fully deductible
- If your MAGI is more than $61,000 but less than $71,000, your contribution starts to phase out
- If your MAGI is more than $71,000, your contribution is phased out completely
- If your MAGI is $98,000 or below, your contribution is fully deductible
- If your MAGI is more than $98,000 but less than $118,000, your contribution starts to phase out
- If your MAGI is more than $118,000, your contribution is phased out completely
If you're married and your spouse is covered by an employer-sponsored plan, but you are not, the deduction phase-out range is $184,000-$194,000.
Roth IRA contributions are also in accordance with your MAGI. In 2016:
- If your MAGI is $117,000 or below, you can make a contribution
- If your MAGI is more than $117,000 but less than $132,000, you can make a reduced contribution
- If your MAGI is more than $132,000, you are ineligible to make a contribution
- If your MAGI is $184,000 or below, you can make a contribution
- If your MAGI is more than $184,000 but less than $194,000, you can make a reduced contribution
- If your MAGI is more than $194,000, you are ineligible to make a contribution
Finally, if you are 70 ½ or older, only non-deductible Roth IRA contributions are able to be made.
If you have any further questions, I'd be happy to help.
Yes; whether your contribution to the traditional IRA will be deductible depends.
Some things to keep in mind for both:
- Contributions cannot exceed $5500 ($6500 if age 50 and over) combined;
- Contributions must be made of "earned income"
For the Traditional IRA:
- If you and/or your spouse are active participants in a qualified plan at work, only a portion of your contribution will be deductible. There are AGI phaseouts;
- If you and your spouse are not active participants in a qualified plan, you can deduct your contributions;
- You cannot contribute past age 70 1/2
For the Roth IRA:
- For single filers, AGI has to be less than $132,000; for MFJ, AGI has to be less than $194,000 in order to contribute. There are AGI phaseouts;
- Contributions are not deductible;
- You can contribute past age 70 1/2
I hope this helps.
Yes you can! As long as the total contributed does not exceed $5500 for any one particular year between the Traditional and Roth IRA's.
If you happen to be above the age of 50, you can make a catch-up contribution of up to $6500 into a Traditional IRA or a Roth as well.
One thing I have seen some clients and friends of mine do is actually contribute to a 401(k) and a Roth or Traditional IRA in the same year. In the case of a 401(k), you can stash up to $18,000 a year up to age 50 and after age 50 that increases up to $24,000 a year for a catch-up contribution.
The great thing about those that have a 401(k) at work is that you are able to save into the 401(k) at the limits described above and also contribute to a traditional, or a Roth IRA, in the same year. So those people that are under age 50 can save $18,000 in their 401(k) and $5500 in their traditional or Roth IRA. Those that are above age 50 can save $24,000 a year in their 401(k) and also save $6500 a year in a traditional or Roth IRA as well.
I have a lot of people ask me if they should put all of their contributions into a Roth or a traditional IRA, and honestly, I like to recommend a little bit of both.
I hope this helps, best of luck to you!
President of Brein Wealth Management, LLC in Bellevue, WA
Investment Advisory Services offered through Brein Wealth Management, LLC, a registered investment advisor in the state of WA. Investopedia, LLC & Brein Wealth Management, LLC are not affiliated companies.
The answer can be yes, but there are a few considerations to make sure of. One being your eligibility. If eligible, the total maximum you can contribute is $5,500, if under 50 years of age or a maximum of $6,500 (aggregate) if over 50. So if you are under 50, you can contribute $3,000 to a Traditional IRA and $2,500 to a Roth IRA for a total of $5,500. Any combination, if eligible, to the maximum of $5,500.
Some of the eligibility for contributions depends on: if a person has or contributes to a retirement plan at work (401(k), 403(b), etc.), income levels, a non working spouse, and if they are have access through an employer plan, to name a few. It is suggested to discuss the eligibility, phase-out limits and deductibility in greater detail with your tax advisor, since the rules and exceptions will take up more space than allotted here.