Can an individual contribute to both a Roth IRA and a Traditional IRA in the same year?

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. For example, a person 49 or younger can contribute $2,500 into a traditional IRA and $3,000 into a Roth IRA for the 2018 tax year. 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.
  • 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. 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. 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.  (For more, see: Roth IRA vs. Traditional IRA.)