Yes, you 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, or $6,500 for those 50 and over. In 2019, that number rose to $6,000 for individuals ($7,000 for those 50+). For example, a person 49 or younger could have contributed $2,500 into a traditional IRA and $3,000 into a Roth IRA for the 2018 tax year (and $3,000 to each for 2019). Additional conditions must meet IRS requirements as well.
There are a number of factors to consider when deciding how much to contribute to either type of IRA:
- Whether or not you can make contributions to a 401(k), 403(b) or other qualified retirement plan through your employer
- Income limits for Roth IRA contributions
- The current tax rate
- Roth IRA and traditional IRA characteristics
Retirement Plan Eligibility
If you can contribute to your employer’s retirement plan, do that first. Once you are making the maximum contribution there, then you may want to consider making IRA or Roth IRA contributions. Here’s why:
- Company retirement plans have higher contribution limits. For example, 401(k)s have a contribution limit of $18,500 compared to the $5,500 limit for IRAs. (Those figures rose to $19,000, compared to $6,000 for 2019.)
- Retirement plan contributions reduce your income taxes.
- Many employers match your contributions, which is essentially free money.
To find out if your company offers a retirement plan, contact your human resources department or talk to your manager.
Income Limits for IRA Contributions
As of 2018, you can make Roth IRA contributions if you have earned income and your taxable compensation is less than $135,000 if filing individually or $199,000 if you are married and filing jointly. (For 2019, the numbers are less than $137,000 for individual filers and $203,000 for married, filing jointly.) There are no income limits for traditional IRAs.
Distributions and Tax Implications
Contributions into a Roth IRA are after-tax. As a result, 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. When distributions are made, they are taxable. After age 70.5 the IRS requires traditional IRA account holders to take annual withdrawals from their accounts, called required minimum distributions (RMDs).
Contributions into Roth IRAs generally favor investors who are younger with lower taxable income. Higher earners may find it best to take the deduction with a traditional IRA and save the taxes for the future if they believe their federal income tax rate could be lower at retirement. (For more, see: Roth IRA vs. Traditional IRA.)