Business & Finance Personal Finance

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.

    Eligibility for Traditional and Roth IRAs

    • 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.

    Benefits

    • 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.

    Warnings

    • 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.

SHARE
RELATED POSTS on "Business & Finance"
Ways to Build Credit After Bankruptcy
Ways to Build Credit After Bankruptcy
Does Applying for a Mortgage Affect Your Credit Score?
Does Applying for a Mortgage Affect Your Credit Score?
The Novice Investor’S Million Dollar Question: Book a Fixed Deposit or Open a Demat Account?
The Novice Investor’S Million Dollar Question: Book a Fixed Deposit or Open a Demat Account?
Journalism Graduate Scholarships
Journalism Graduate Scholarships
401(k) Roll Over Rules
401(k) Roll Over Rules
Is Social Security Counted Towards a Parent's Income?
Is Social Security Counted Towards a Parent's Income?
Is an IRA Subject to Estate Tax?
Is an IRA Subject to Estate Tax?
Group Medical Insurance
Group Medical Insurance
How to Create a Bar Chart Online
How to Create a Bar Chart Online
Illinois Grants for Reading and Writing in St. Clair County
Illinois Grants for Reading and Writing in St. Clair County
How to Build Credit From Scratch Fast
How to Build Credit From Scratch Fast
Can I Be Responsible For Someone Else's Debt?
Can I Be Responsible For Someone Else's Debt?
Financial Statement Functions
Financial Statement Functions
How to Split an IRA in a Divorce
How to Split an IRA in a Divorce
A Few Investing Tips and Insight on the Benefits of Employing Research Process
A Few Investing Tips and Insight on the Benefits of Employing Research Process
How to Tell If a Bank Account Is Active & Has Funds Available
How to Tell If a Bank Account Is Active & Has Funds Available
Tax Penalties for Early IRA Distributions
Tax Penalties for Early IRA Distributions
Salary for an Associate Dean of Law Library Services
Salary for an Associate Dean of Law Library Services
How to Stop an Auto Repo
How to Stop an Auto Repo
Do I Need to File for an Unemployment Extension?
Do I Need to File for an Unemployment Extension?
Traditional IRA 70 1/2 Withdrawal Rules
Traditional IRA 70 1/2 Withdrawal Rules
A Successful Retirement With Self Managed Super Funds and Property Investments
A Successful Retirement With Self Managed Super Funds and Property Investments
Creative Ways to Do a Character Analysis
Creative Ways to Do a Character Analysis
How to Transfer a 403(b) to an IRA
How to Transfer a 403(b) to an IRA
How to Clip and Organize Coupons
How to Clip and Organize Coupons

Leave Your Reply

*