Traditional AND Roth

[Guest tgille]

I have a traditional IRA (from a company roll-over), can I open a Roth IRA as well?

If so can I make contributions to both? If not what are the limits?

Thanks

[John G]

If you have earned income, you can qualify for regular or Roth IRAs. You can open and contribute to both in the same year but the maximum contribution is based upon the combinations.... ie. you can not do 4k x two!

For perhaps 90% of the population, the Roth is superior to a regular IRA, but that depends heavily upon current tax rates, tax rates in your retirement years (which depends both on tax rates and the types of other retirement funds you will be drawing upon), and other factors.

A Roth account is distinct from a rollover IRA. However, if you decide on using a regular IRA you can add it to your rollover account or keep it separate.

[Lori Friedman]

Some other considerations for choosing between Traditional v. Roth IRA:

Income limitations - Roth eligibility is subject to annual income limits ($160,000 for married filing jointly; $110,000 for single or head of household). If your income exceeds the annual limit, you can't make any Roth IRA contributions. There's no similar rule for Traditional IRAs.

Deductibility - Contributions to a Roth IRA are never tax-deductible. Depending on your filing status, income, and whether you participate in an employer-sponsored retirement plan, a Traditional IRA contribution may or may not be tax-deductible. If you're entitled to an immediate income tax break from a deductible IRA contribution, is it advantageous for you to take the deduction? The answer depends on your own circumstances and planning needs.

Age limitations - You can't make a Traditional IRA contribution after age 70-1/2. For a Roth IRA, there's no age ceiling.

Required minimum distributions - You must begin to take RMDs from a Traditional IRA after age 70-1/2. Even if you don't need the money, you're required to add taxable amounts to your income and gradually reduce your account balance. Roth IRAs aren't subject to the RMD rules.

Tax treatment of distributions - Roth IRA earnings accumulate on a tax-free basis. In general, your investment earnings are distributed without taxation. Traditional IRA earnings are tax-deferred and subject to taxation upon distribution.

[WDIK]

If your income exceeds the annual limit, you can't make any Roth IRA contributions.  There's no similar rule for Traditional IRAs.

Just for completeness, it ought to be pointed out that modified adjusted gross income does have an effect on deductibility if the individual is covered by a retirement plan.

[Lori Friedman]

WDIK, to complete your completion...

That's true for deductible contributions. An individual can make contributions to a Traditional IRA -- deductible, nondeductible, or a combination -- up to the lesser of the maximum ($4,000 + $500 catchup in 2005) or 100% of earned income, regardless of his/her annual income.

No Roth IRA contributions can be made, whatsoever, if the taxpayer exceeds an annual income ceiling.

[WDIK]

...to complete your completion...

Granted, completeness was probably not the most appropriate term that I could have chosen, unless I was planning on attaching Publication 590, etc.

(My previous post did specify that it was the deductibility that was at issue.)