Roth IRAs and traditional IRAs are good choices for those looking to maximize their options for retirement. You can have both retirement vehicles and contribute to each as long as your total contribution doesn’t exceed the Internal Revenue Service (IRS) limit for any given year. You can also have an IRA and participate in employer-sponsored plans, such as the 401(k), Simple IRA, and SEP plan. However, you'll need to meet specific eligibility requirements for each type.
The contribution limit for 2023 is $6,500 (up from $6,000 in 2022) for both the traditional and the Roth IRA combined. If you’re 50 or older, a catch-up provision allows you to put in an additional $1,000 for a combined total of $7,500.
- You may be able to contribute to both a Roth and a traditional individual retirement account (IRA) up to the limits set by the Internal Revenue Service (IRS), which is $6,500 total among all IRA accounts for 2023 ($6,000 in 2022).
- If you’re age 50 or older, you can contribute a total of $7,500 ($7,000 in 2022)
- These two types of IRAs also have eligibility requirements that you’ll need to meet, such as not exceeding income limits if you’re contributing to a Roth.
- Before contributing to either, ensure you’re maximizing employer-sponsored retirement plans that offer matching funds at work.
- Traditional IRAs require their account holders to take a required distribution at a certain age; however, Roth IRAs are not subject to the same requirement.
Divvying Up Your Contributions
Whether your traditional IRA contributions are tax-deductible and whether you’re eligible to contribute to a Roth IRA will depend on your income and other factors.
Contributions to a traditional IRA are tax-deductible, which means that they lower your taxable income in the contribution year. However, you pay tax when you withdraw the money in retirement. You don’t get a tax deduction when you contribute to a Roth IRA, but your withdrawals during retirement are tax-free.
If you can afford it and are eligible for both, having both types of IRAs gives you a choice of taxable and tax-free income when you eventually make your withdrawals. For example, a person who is less than 50 years old could contribute $3,250 to a traditional IRA and another $3,250 to a Roth IRA. You can split your contributions any way you like as long as total deposits in all accounts do not exceed the overall contribution limit for that tax year.
Traditional IRA or Roth IRA: How to Decide
After age 59 1/2, the account holder is no longer subject to the IRS premature withdrawal penalty of 10% on withdrawals. The differences are highlighted in the chart below.
Contributions can be tax deductible.
All withdrawals, including contributions and earnings, are fully taxable as ordinary income.
Account holders are subject to the IRS required minimum distribution rule.
Contributions are not tax deductible.
Contributions and earnings can be withdrawn tax free. Withdrawals of earnings are not subject to taxation provided its been at least five years from the first contribution.
Account holders are not subject to the IRS required minimum distribution rule.
Traditional and Roth IRA Eligibility
There is no income limit on eligibility for a traditional IRA. But the extent to which your contributions are tax deductible depends on your income and whether you or your spouse (if you're married) have access to an employer-sponsored plan, such as a 401(k).
For example, in 2023, single filers must have a modified adjusted gross income (MAGI) of less than $153,000 (up from $144,000 in 2022), with contributions being phased out starting with a MAGI of $138,000 (up from $129,000 in 2022). The MAGI range for married couples filing jointly is $218,000 to $228,000 ($204,000 to $214,000 in 2022).
The income limits apply to Roth IRA contributions also. For example, if you’re married filing jointly and your MAGI is $228,000 or more ($214,000 or more for 2022), you are ineligible to contribute to a Roth IRA.For single taxpayers, having a MAGI of $153,000 ($144,000 for 2022) or more disqualifies them from contributing.
You must have earned income to contribute to either a Roth or a traditional IRA. Investment income doesn’t qualify.
Traditional IRA and Roth IRA Withdrawal Requirements
Traditional IRA account holders are required to take a required minimum distribution (RMD) at the age of 72 or age 70 1/2 if they turned 70 1/2 before Jan. 1, 2020. These required distributions are fully taxable as ordinary income.
Traditional IRA account holders have until April 1 of the following tax year to take their first required distribution. All subsequent distributions must be taken by Dec. 31 of the distribution year. If the account holder opts to take the first distribution in the following tax year, they will receive two distributions in that year: one for the first required year and the second for the second tax year.
The minimum distribution requirement applies to all IRAs an account holder owns. However, a single distribution can be made from one IRA to satisfy all. The single distribution must total at least the sum of all required distributions.
There are no required minimum distribution requirements for Roth IRAs during the account holder's lifetime; however, upon death, non-spousal beneficiaries are required to take RMDs. The Secure Act of 2019 requires these beneficiaries to receive a full payout of the Roth IRA within 10 years of the account holder's death.
Contributing to an IRA and a 401(k)
It’s possible to contribute to both an IRA and a 401(k) if you meet eligibility requirements. The IRS also imposes income limits that determine whether your traditional IRA contributions are tax-deductible if you contribute to both. The amount that you can contribute to a Roth IRA and a 401(k) is reduced or eliminated at higher incomes.
Even before you consider a traditional or Roth IRA, you might want to make sure that you’re taking full advantage of your 401(k) plan or another work-based retirement plan if you have access to one. Company retirement plans generally have higher contribution limits than either a traditional or Roth IRA. The contribution limit for 401(k) plans is $22,500 ($20,500 for 2022). Participants ages 50 and older can contribute an additional $7,500.
You have until the filing deadline of the following year to contribute to an IRA. So if you file your 2022 taxes, you have until April 18, 2023, in most states, to contribute for the 2022 tax year.
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, then investing your other retirement savings elsewhere, such as in an IRA.
What Are Roth IRA and Traditional IRA Limits?
The annual contribution limit for both traditional and Roth individual retirement accounts (IRAs) is $6,500 ($6,000 for 2022). If you are age 50 or older, you can contribute an additional $1,000.
Can You Contribute to a Roth IRA and a Simple IRA in the Same Year?
The IRS allows participants to contribute to Roth IRAs and Simple IRAs in the same year. However, it is important to note that each type of retirement account has its own contribution rules and limits.
Can I Contribute to a Traditional IRA If I Have a Roth 401(k)?
You can contribute to a traditional IRA if you have a Roth 401(k) as long as certain requirements are met. Also, there are income limits that determine whether traditional IRA contributions are tax-deductible.
How Many IRAs Can You Have?
There are no restrictions on how many IRAs a person can own. However, IRS restricts how much can be contributed to an IRA annually. The maximum annual contribution is not per account but is the total that can be contributed across all accounts.
The Bottom Line
As long as you meet eligibility requirements, such as having earned income, you can contribute to both a Roth and a traditional IRA. How much you contribute to each is up to you, as long as you don’t exceed the combined annual contribution limit of $6,500 or $7,500 if you’re 50 or older.
Each presents different features that are important to consider when investing. For example, Roth IRA contributions are not tax-deductible but can be withdrawn tax-free from the account. Alternatively, traditional IRA contributions can be tax-deductible, provided specific requirements are met, but cannot be withdrawn tax-free. Also, traditional IRAs require the account holder to begin receiving distributions at a certain age, whereas Roth IRAs do not.
Choosing one or both requires a clear understanding of how they work and their requirements for participation.