Can You Have Both Traditional & Roth IRA Accounts?

Limitations

You can have both a traditional IRA and a Roth IRA, and even contribute to both accounts in the same year, but the total amount you can contribute remains the same as if you had only one type of IRA. For example, in the 2011 tax year, the maximum that a person can contribute to traditional IRAs and Roth IRAs combined is $5,000 so if you put $1,240 in a Roth IRA, you cannot put more than $3,760 into a traditional IRA.

You must meet the eligibility requirements to contribute to each type of IRA. The IRS prohibits people who turn 70 1/2 year old or older during the year from making a traditional IRA contribution. For Roth IRAs, the IRS prohibits people who have a modified adjusted gross income in excess of the annual limits to for their filing status. The IRS changes these limits each year.

If you expect to fall in a higher tax bracket at retirement, you usually should contribute to a Roth IRA. If you expect a lower tax rate at retirement, consider a traditional IRA. However, since retirement may be years or decades away, it may be hard for you to predict. Therefore, by splitting your annual contributions between a traditional IRA and a Roth IRA, you can take advantage of both benefits.

Contributing too much to your traditional and Roth IRAs results in extra tax penalties. Therefore, you need to keep track of how much you contribute to each IRA type to make sure the total does not exceed your annual limit. If you exceed your annual limit, the IRS imposes a 6 percent penalty on the excess each year it remains uncorrected. You figure this penalty with Part III of Form 5329 and add the amount of the penalty to your income taxes due for the year.