Can I Contribute to Both Types of IRA Accounts?
Original post by Herb Kirchhoff of Demand Media
The Internal Revenue Service (IRS) rules provide for different types of individual retirement accounts (IRA) including the traditional tax-deferred IRA and the tax-free Roth IRA. The rules don't require that you pick only one type of retirement account. You can contribute to both a traditional and a Roth IRA in the same year, but you are subject to contribution and deduction limits.
As of the time of publication, you can contribute up to $5,000 per year to all of your IRAs combined if your annual adjusted gross income is below $107,000. If you contributed to a traditional tax-deferred IRA and also want to contribute to a Roth IRA in the same year, you must subtract your traditional IRA contribution from the total IRA contribution limit to find out how much you can put into your Roth account. For example, if you contributed $3,000 to your traditional IRA, you could only contribute $2,000 to your Roth IRA. If you are age 50 or older, your combined traditional and Roth contribution limit is $6,000. If you are married filing jointly and your combined income was below $169,000, you and your spouse can contribute a total of $10,000 ($12,000 if 50 or older) to any combination of traditional and Roth IRAs.
You get an income tax deduction for your contribution to your traditional tax-deferred IRA but no deduction for the contribution you made to your Roth IRA. If you contributed $3,000 to your traditional IRA and $2,000 to your Roth IRA, you can only deduct the $3,000 you put into your traditional IRA. The $2,000 you put into your Roth account isn't deductible. You can't make any more contributions to your traditional IRA when you reach age 70 1/2, but you can keep on contributing to your Roth IRA past that age.
When you are contributing to two different types of retirement account, it's possible to lose track of your contributions and put too much into one or both accounts. If you ended up contributing too much to your traditional or Roth IRA, you are liable for a 6 percent penalty tax on the excess contribution. You can avoid the penalty tax if you withdraw the excess contribution before the due date of that year's tax return -- but you also must withdraw any earnings you made on the excess contribution. Those earnings are subject to the 10 percent penalty tax on early withdrawals.
Carry It Over
Alternatively, you can apply this year's excess contributions to the next tax year, but that will reduce the next year's allowable contribution amount. If you mistakenly included the excess contribution to your traditional IRA in your tax deductions but have not yet filed your tax return, you must change your return to include the excess contribution in your income. If you already filed your tax return, you have six months from the return's due date to withdraw the excess contribution. You will have to file an amended tax return to account for the excess contribution and any earnings on that money.
- IRS.gov: Publication 590, Chapter 1, Traditional IRAs
- IRS.gov: Publication 590, Chapter 2, Roth IRAs
About the Author
Herbert Kirchhoff has over 35 years experience as a newspaper and newsletter reporter, writer and editor, with 27 of those years spent on telecommunications industry policy issues. Kirchhoff has a B.A. in journalism from Rider University in New Jersey and has been published in the "Trenton (N.J.) Times" and in "Communications Daily" and State Telephone Regulation Report, Washington, D.C.