The IRS limits for 2019 and 2020 is $6,000 for both the traditional and the Roth IRA combined. If you're age 50 or over, 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 & 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
For example, a person under age 50 could contribute $3,000 to a traditional IRA and another $3,000 to a Roth IRA. Whether their traditional IRA contributions are tax-deductible and whether they're eligible to contribute to a Roth IRA at all will depend on their income and other factors.
The tax on the income contributed to the traditional IRA will generally be postponed until the money is withdrawn after retirement. The income contributed the Roth IRA is taxable, but withdrawals will be tax-free if the account holder meets certain conditions.
If you can afford it, and if you're eligible for both, having the two types of IRA gives you a choice of taxable or tax-free income when you eventually make your withdrawals.
IRA 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 other work-based retirement plan, if your employer offers one. Here are a couple of reasons:
- Company retirement plans have higher contribution limits. For example, a 401(k) has a contribution limit of $19,000 for 2019, plus an additional catch-up contribution of $6,000 for anyone 50 or older. That's a possible total of $25,000, all of it tax-deductible in the case of a traditional 401(k).
- 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 advisers 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 type of IRA. Investment income doesn't qualify.
IRA and Roth 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, has access to an employer plan at work.
There are income limits for Roth contributions, however. For example, if you're married, file jointly, and your modified adjusted gross income is $203,000 or higher (in 2019), 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.