Daily Deduction: Roth vs. Traditional IRAs

Of course, Congress likes to complicate stuff, so income limitations apply. You can contribute to a Roth as long as you have an adjusted gross income of less than $116,000 as a single person or $169,000 as a married person filing jointly. These numbers are more forgiving than the traditional IRA limits, so a broader assortment of folks qualify for the Roth account than the traditional one.

Finally, did you know that you can have and contribute to both types of accounts? There is no law against opening both a Roth IRA and a traditional IRA. Of course, the overall contribution limit still applies. You can contribute up to $5,000, but you have to spread it between the two accounts.

For instance, if you can take a full deduction for your traditional IRA contribution, you might choose to put all $5,000 into that account. But if your deduction is reduced because your income is too high, you might contribute the deductible amount to your traditional IRA and the rest to your Roth. Furthermore, the IRS will allow you to move payments made to one account into another if you make the move in the same year as the original payment. This means you don't have to plan your traditional/Roth split in advance. Having both kinds of accounts provides you with more flexibility at tax time.

Don't forget, though, that maintaining two accounts means paying two sets of investment fees, which might outweigh the benefit if your service providers are expensive.

Withdrawals