You may maintain both a traditional IRA and a Roth IRA, as long as your total contribution doesn't exceed the Internal Revenue Service (IRS) limits for any given year and you meet certain other eligibility requirements.
The IRS limit for both 2019 and 2020 is $6,000 for both the traditional and the Roth IRA combined. If you're aged 50 or older, a catch-up provision allows you to put in an additional $1,000, for a combined total of $7,000.
- You may be able to contribute to both a Roth and traditional IRA, up to the limits set by the IRS, which are $6,000 total between all IRA accounts in 2019 and 2020.
- These two types of IRAs also have eligibility requirements you'll need to meet.
- Before you contribute to either, make sure you're maximizing any retirement plans you have at work.
Divvying Up Your Contributions
A person who's less than 50 years old could contribute $3,000 to a traditional IRA and another $3,000 to a Roth IRA. Whether your traditional IRA contributions are tax-deductible and whether you're eligible to contribute to a Roth IRA at all will depend on your income and other factors.
In a traditional IRA, you'll generally pay tax on the income you contribute when you withdraw the money in retirement. The income you contribute to a Roth IRA also is taxable, but you usually pay this tax prior to contributing the funds, so withdrawals from a Roth are not taxed if you meet certain conditions.
If you can afford it, and if you're eligible for both, having both types of IRA gives you a choice of taxable or tax-free income when you eventually make your withdrawals.
Traditional or Roth: How to Decide
Even before you consider a traditional or Roth IRA, you might want to make sure you're taking full advantage of your 401(k) or another work-based retirement plan, if your employer offers one. Here are a couple of reasons why this makes sense:
- Company retirement plans generally have higher contribution limits than either a traditional or a Roth IRA. Employee 401(k) contributions for 2020 can increase by $500 to $19,500, while the combined employer and employee contribution limit rises by $1,000 to $57,000, the IRS announced. For participants aged 50 and older, the additional "catch-up" contribution limit will rise to $6,500, up by $500.
- Many employers will match your contributions, which is essentially free money. If you're dissatisfied with the investment choices in your 401(k) plan, financial advisors often suggest contributing at least enough to get the full employer match and then investing your other retirement savings elsewhere, such as in an IRA.
You need to have earned income to contribute to either a Roth or a traditional IRA. Investment income doesn't qualify.
Traditional and Roth IRAs Eligibility
There is no income limit on eligibility for a traditional IRA. However, the extent to which your contributions are tax-deductible depends on your income as well as whether you or your spouse, if you're married, have access to an employer plan at work.
There are income limits for Roth contributions, however. For example, if you're married, filing jointly, and your modified adjusted gross income is $206,000 or more (in 2020), you are ineligible for a Roth IRA.
Both types of IRA also have to be funded with earned income rather than, for example, investment income.