Can I Have a Tranditional IRA & a Roth IRA at the Same Time?
There may be certain eligibility requirements, but you usually can contribute to a Roth and traditional IRA at the same time. In fact, you can contribute to multiple IRAs of either type. However, you must adhere to IRS limits on how much you can invest in a given year.
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Function
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Both Roth and traditional IRAs offer tax-deferred growth on earnings, such as interest, dividends and capital gains. If you have these types of earnings in a taxable account, you must report them annually so the Internal Revenue Service can take its share. Not in an IRA. The money you put into your traditional IRA is tax-deductible, up to an annual cap, but Roth investments are not. And while you can generally withdraw Roth IRA money tax-free once you turn age 59 1/2, the IRS taxes all traditional IRA withdrawals at your regular income tax rate, even in retirement.
Eligibility
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In theory, you can contribute to Roth and traditional IRAs in the same year. You must, however, be eligible to do so. Eligibility rules often change and they tend to hinge on factors such as income, filing status and participation in a workplace retirement plan, so it's best to consult IRS Publication 590 or your tax adviser for the latest information. For example, as Publication 590 notes, you can have a traditional IRA if you have taxable compensation, but you might not be able to deduct all or part of your contributions if you or your spouse invests in a workplace plan. You can contribute to a Roth IRA if you have taxable compensation and your modified adjusted gross income, or AGI, falls below a certain level. As of 2010, the IRS says your modified AGI must be less than $176,000 if you use married filing jointly status and less than $120,000 if you file as a single person, head of household or married filing separately and you did not live with your spouse at any juncture during the tax year.
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Limits
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Once you figure out if you are eligible to put money in both a Roth and traditional IRA, you have to adhere to contribution limits. Generally, the IRS limits total IRA contributions to $5,000 annually, or $6,000 a year if you are age 50 or older, as of October 2010. These limits can fluctuate, however, depending on your situation, the tax year and any special programs or stipulations the IRS has in place.
Benefits
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You may benefit from contributing to a traditional IRA over a Roth if you anticipate a lower tax bracket in retirement and could use the tax deduction today. Roth contributions make sense if you think you will face a higher tax bracket in retirement, according to Nasdaq. The IRS taxes traditional IRA proceeds when you access them in retirement, but not Roth funds, which are taxed when you contribute to the account.
Considerations
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The IRS requires you to have a Roth IRA a minimum of five years before making withdrawals without penalty, even if you are past age 59 1/2. The IRS does not apply this stipulation to traditional IRAs. But you must start withdrawing traditional IRA money annually in the year after you turn 70 1/2. The IRS does not apply this regulation to Roth IRAs.
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