Can I Contribute to Both a Roth and Traditional IRA and is the Limit Shared?
Over-achieving savers often run into questions about their ability to contribute to multiple tax-advantaged retirement accounts. Here’s a recent question from a reader:
I have a traditional IRA and a Roth IRA. I make under $50K a year. According to your article, I need to split the $6,000 max contribution amount between those accounts (i.e. I cannot contribute $6,000 to each account). Is that correct?
My answer: Yes, $6,000 is as much as you can contribute, combined, to both accounts. You are correct that you cannot contribute $6,000 to each. $6,000 is the maximum contribution amount.
We are going to explore some other account combinations to learn whether it’s possible to contribute to both. But first, let’s answer some important questions about contributing to both a Traditional IRA and a Roth IRA.
When is Contributing to Both a Traditional IRA and a Roth IRA a Good Idea?
If you don’t have a 401k account, or if you have a terrible 401k, it would make sense to go this route. This allows you to create some tax diversification in your portfolio. Many people pick certain retirement accounts because taxes are deferred until later. This means getting hit with a bigger tax bill right at your retirement age, though, if all your investments are tax-deferred.
When is Picking either a Traditional IRA or Roth IRA Better?
There are times when it is better to pick one IRA instead of having both. This includes:
- If you have a 401k
- If you have an income limitation
- If you ever want to do a backdoor Roth conversion (your traditional ira contributions could trip you up)
Which IRA is Better if You Have No Limitations but you Just Want to Keep Things Simple?
This isn’t a simple question to answer because it all depends on your situation. Generally, I would say Roth is a better option. There are no forced withdrawals, but you can make tax-free withdrawals as early as 59 ½ years old. However, there are income restrictions on Roth IRAs that might affect some of you. In 2022 if you are single, you must make less than $144,000 per year to qualify for a Roth IRA. If you are married you must earn less than $204,000. (Here’s more info about IRA income limits.) With a Traditional IRA, contributions are tax-deductible. Both are excellent investment choices.
If you earn over the income limits you still have an option for contributing to a Roth IRA. You can do a backdoor Roth conversion. Learn more about the backdoor Roth here.
Should You Have Your Traditional IRA and Roth IRA at the Same Place?
I don’t think you can go wrong one way or another. With regard to institutional risk, I don’t think there is much to it. Vanguard isn’t going out of business anytime soon. It’s much simpler to keep them at the same institution. But if you already have them at different institutions, it probably doesn’t warrant moving them. One possible advantage to keeping them at different places is you may access different perks or fund options that could help you.
Should Your Traditional IRA and Roth IRA Invest in the Same Funds?
I personally have both IRA accounts at Vanguard and they are both invested in VFORX. However, given I can tap into my Roth IRA contributions pre-retirement, it should ideally have a target date fund ending earlier than 2040. If you have a shorter time horizon for when you would be withdrawing funds to use, you might want to consider slightly different funds if they are timeline-based like the VFORX. Because Traditional IRAs and Roth IRAs have different withdrawal rules, you might want to have them in different funds.
Related: How To Keep Investing Simple and Get Started Today
In What Order Should I Make Contributions?
You want to start with your 401k because of the employer match. That’s free money you shouldn’t pass up. Then, invest in your Roth IRA to the maximum. After that, bring your 401k up to the maximum as well. If you don’t have a 401k, then invest the maximum in your Roth IRA and go from there.
What are Some More Ways to Shelter Income and Save?
Lowering your taxable income is a great way to invest money and pay lower income taxes. If you are looking for a couple of ways to do this, after contributing to your 401K and IRAs, look at these options:
Taxable Accounts: Taxable investments are good to set up after you max out your retirement accounts. A taxable investment account helps you to grow your wealth. It also can be used, without penalty, before retirement. Here’s some help to get started with investing in taxable accounts.
Health Savings Account (HSA): If you are eligible, setting aside money in an HSA is a great way to lower your taxable income. A Health Savings Account is a tax-advantaged savings account for health care expenses. You can use the money now for qualifying health care expenses, but it works similar to a Roth IRA in regards to taxes. If you are interesting learning more about HSA’s here are my thoughts.
Other Account Combinations
With so many different types of accounts and possible combinations, I thought it might be helpful to have one page that answers many of these “can I contribute to both” questions.
You’ll notice that in all cases you can contribute to both accounts. The question becomes: how is your annual contribution limited?
Can I Contribute to Both…
Traditional IRA and a Roth IRA? Yes, as long as you keep your combined contribution within the annual maximum contribution limit and meet the income requirements you can contribute to both accounts.
401K and a Roth IRA? Yes, there is absolutely no conflict with these two accounts. The IRS lets you fully participate in both as long as you meet the income requirements. As of 2022, you can contribute up to $20,500 to your 401K and up to $6,000 to your Roth IRA, for $26,500 total that you can put away in tax-advantaged accounts in a single year.
See also:Roth IRA vs 401K: Which is Right for You?
Traditional IRA and a 401K? Yes, but there are strict income requirements that make it difficult for middle to high-income earners to take advantage of both accounts. In 2022, if you are single you must earn under $78,000 to deduct any of your Traditional IRA contributions. If you are married, your combined income must be under $129,000. Here’s more information about that.
These accounts also have separate annual maximum contribution limits. Note that you can always make non-deductible contributions to your Traditional IRA regardless of your income or participation in a 401K. Note: if you do make a non-deductible contribution to your Traditional IRA you might want to consider rolling that over into a Roth to get the tax benefits on any future growth.
401K and a Roth 401K? Yes, and this is highly recommended. By contributing to both you add tax treatment diversity to your retirement savings (the 401K is taxed in retirement, while the Roth 401K is taxed upfront). These accounts also have separate annual maximum contribution limits.
401K and a 403B? Yes, but your annual maximum contribution limits are combined. So if you’ve already contributed the maximum to your 401K, you can’t make tax-deductible contributions to your 403B.
401K and a 457? Yes, and these accounts have separate annual maximum contribution limits. If you have access to both of these accounts then you’ve got a huge tax-advantaged savings opportunity available to you.
Roth IRA #1 and a Roth IRA #2? Yes, you can have multiple Roth IRAs, but your annual maximum contribution limits are combined.
Okay, this list is getting a little out of hand, so I’m going to switch to a chart to include more accounts and to keep things simple:
Chart: Rules for Contributing to Multiple Accounts
| 401K | IRA | Roth IRA | 403B | TSP | 457 | SEP IRA | SIMPLE IRA | Solo 401K | Roth 401K | |
|---|---|---|---|---|---|---|---|---|---|---|
| 401K | Shared | Limited | Yes | Shared | Shared | Yes | Yes | Shared | Shared | Yes |
| IRA | Limited | Shared | Shared | Limited | Limited | Yes | Yes | Yes | Shared | Yes |
| Roth IRA | Yes | Shared | Shared | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
| 403B | Shared | Limited | Yes | Shared | Shared | Yes | Yes | Shared | Shared | Yes |
| TSP | Shared | Limited | Yes | Shared | Shared | Yes | Yes | Shared | Shared | Yes |
| 457 | Yes | Yes | Yes | Yes | Yes | Shared | Yes | Yes | Yes | Yes |
| SEP IRA | Yes | Yes | Yes | Yes | Yes | Yes | Shared | Yes | Yes | Yes |
| SIMPLE IRA | Shared | Yes | Yes | Shared | Shared | Yes | Yes | Shared | Shared | Yes |
| Solo 401K | Shared | Shared | Yes | Shared | Shared | Yes | Yes | Shared | Shared | Yes |
| Roth 401K | Shared | Yes | Yes | Shared | Yes | Yes | Yes | Yes | Yes | Shared |
Chart Key
- Yes – You are free to contribute to both accounts provided you meet income limits. There are no limitations other than annual maximum contribution limits, which are NOT shared.
- Shared – You are free to contribute to both accounts provided you meet income limits. There are no limitations other than annual maximum contribution limits, but they ARE shared across the accounts.
- Limited – You are free to contribute to both accounts provided you meet income limits. However, there are special income limitations that further limit your ability to contribute to both accounts.
As you can see there are lots of opportunities to save in a tax-advantaged way. Are you saving for retirement using one or more of these accounts? I hope so.
Where Can I Open an IRA or Other Account?
A couple of my personal favorite brokers are Vanguard and Fidelity. Those aren’t the only options, though. It all depends on what you are looking for in a broker. Here are some articles you may find helpful.
- The Best Robo Advisors to Automate Your Investing
- Betterment Vs Vanguard: Both are Great but Which is Best for You?
- M1 Finance Review: The Free Robo Advisor that YOU Control
- Betterment Vs Wealthfront: Which is the Better Robo Advisor?
As always, be sure to do your own research before investing.
Help me improve this resource. Did I leave any combinations off the list?
