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Answer:
Dear
John,
Good
question -- one everyone who works needs to know the
answer.
Yes.
You can put money into both a traditional and a Roth
IRA in the same tax year.
But
the real question you must address is: why do you
wish to do so? You must discuss this issue with your
accountant or tax preparer. In the meantime, here
are the facts to review with a professional advisor.
A
DEDUCTIBLE TRADITIONAL IRA
You
can deduct contributions to a traditional IRA if:
(1) You are not covered by a company plan, including
a 401(k) or if: (2) You meet certain income eligibility
limits.
Your
adjusted gross income (AGI) must be less than $40,000
if you're single or, if you're married, less than
$60,000. Singles with an AGI up to $50,000 and married
couples with an AGI up to $70,000 qualify for a partial
deduction, laid out by the IRS on a sliding scale.
THE
ROTH IRA
Contributions
made to a Roth IRA are not deductible for anyone,
regardless of that person's income.
On
the other hand, once you turn 59 1/2, earnings in
the account can be withdrawn tax free -- an excellent
tax benefit.
Another
nice break: You do not have to take mandatory
withdrawals when you reach age 70 1/2 as you do with
the traditional IRA. In fact, you never are required
to take withdrawals, so you can pass along your IRA
to a designated heir.
You
can also contribute to a Roth even though you have
a 401(k) -- depending upon your income:
-
Singles with an AGI over $110,000 and married couples
with an AGI over $160,000 cannot contribute to a
Roth.
- Singles
who have an AGI between $95,000 and $110,000 and
marrieds with an AGI between $150,000 and $160,000
are allowed to contribute, but at reduced amounts
on a sliding scale.
THE
NON-DEDUCTIBLE IRA
This
IRA is designed for people who have a 401(k) or other
company plan and who also earn too much to invest
in the Roth.
Although
contributions are not deductible, the account grows
on a tax-free basis. But you must pay taxes on earnings
and dividends if and when you make withdrawals.
CAUTION:
But be careful and be sure to check with your accountant
if you're considering the non-deductible IRA. The
current tax ruling, which reduced the top tax rate
on stock dividends to 15% and on long-term capital
gains, also to 15%, may reduce the benefits of this
type of IRA if you are in high tax bracket.
Why,
you may well ask? Because withdrawals will be taxed
at one's ordinary income rate, which could be as high
as 35%.
For
additional information:
www.irs.gov
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