Can You Have Both Traditional and Roth IRA Accounts?

Saving for retirement often involves choosing between a Traditional IRA and a Roth IRA, and many wonder if they can have both. The answer is yes, but there are rules and limitations to consider. Understanding how these accounts work together can help maximize tax advantages and long-term savings.

Managing multiple IRAs requires careful planning to comply with IRS regulations while optimizing contributions and withdrawals.

Eligibility Requirements

Qualifying for both a Traditional IRA and a Roth IRA depends on income, tax filing status, and earned compensation. The IRS sets annual income limits for Roth IRA contributions based on modified adjusted gross income (MAGI). In 2024, single filers with a MAGI above $161,000 cannot contribute, while those earning between $146,000 and $161,000 can contribute a reduced amount. For married couples filing jointly, the phase-out range is $230,000 to $240,000.

Traditional IRAs have no income limits for contributions, but tax deductibility is affected if the account holder or their spouse has access to a workplace retirement plan. In 2024, a single filer covered by a workplace plan can deduct the full contribution if their MAGI is $77,000 or less, with deductions phasing out between $77,000 and $87,000. For married couples filing jointly, the deduction phases out between $123,000 and $143,000 if the contributing spouse is covered by a workplace plan.

Earned income is required for IRA contributions. Wages, salaries, self-employment income, and taxable alimony qualify, but rental income, dividends, and Social Security benefits do not. Retirees without earned income cannot contribute unless a spouse with qualifying earnings makes contributions on their behalf through a spousal IRA.

Contribution Guidelines

For 2024, the total contribution limit across both a Traditional IRA and a Roth IRA is $7,000 for individuals under 50. Those 50 and older can contribute up to $8,000 due to the catch-up provision. These limits apply collectively, meaning contributions must be divided within this cap rather than made separately to each account.

Allocating contributions strategically can provide tax diversification. Those expecting higher tax rates in retirement may prioritize Roth IRA contributions, as qualified withdrawals are tax-free. Those seeking immediate tax deductions may contribute more to a Traditional IRA. Individuals uncertain about future tax rates often split contributions to hedge against changes in tax laws or income levels.

The timing of contributions can impact long-term growth. Some investors make lump-sum contributions at the beginning of the year to maximize potential compounding, while others prefer dollar-cost averaging by contributing smaller amounts each month to reduce market timing risk. The best approach depends on cash flow and market conditions.

Distribution and Tax Handling

Withdrawals from a Traditional or Roth IRA have different tax implications. Traditional IRA distributions are taxed as ordinary income, with the rate based on the individual’s marginal bracket at the time of withdrawal. Required Minimum Distributions (RMDs) begin at age 73, and failing to withdraw the required amount results in a 25% penalty on the shortfall. The IRS calculates RMDs using life expectancy tables.

Roth IRAs offer more flexibility. Since contributions are made with after-tax dollars, qualified withdrawals—including earnings—are tax-free. To qualify, the account must be open for at least five years, and the account holder must be at least 59½ or meet exceptions such as a first-time home purchase (up to $10,000) or disability. Unlike Traditional IRAs, Roth IRAs do not have RMDs during the original owner’s lifetime, making them useful for estate planning.

Non-qualified withdrawals can trigger penalties. Traditional IRA distributions taken before age 59½ generally incur a 10% early withdrawal penalty plus ordinary income tax, though exceptions exist for higher education expenses and medical costs exceeding 7.5% of adjusted gross income. Roth IRA earnings withdrawn early also face a 10% penalty, but contributions can always be accessed tax- and penalty-free. This makes Roth IRAs more flexible for those who may need early access to funds.

Coordinating Multiple IRA Accounts

Managing both a Traditional IRA and a Roth IRA requires a structured approach to maximize tax efficiency. One strategy is aligning investments with each account’s tax treatment. Since Roth IRAs provide tax-free withdrawals, they are well-suited for assets with higher growth potential, such as stocks or real estate investment trusts (REITs). Traditional IRAs, which are taxed upon distribution, may be better allocated toward income-generating assets like bonds or dividend-paying stocks to minimize future tax liabilities.

Rebalancing across accounts is also important. Market fluctuations can shift asset allocations, increasing risk exposure. Adjusting investments periodically helps maintain the desired balance while considering future tax implications. Tax loss harvesting within taxable brokerage accounts can also complement IRA strategies by offsetting gains and allowing for more tax-efficient reallocation.

Beneficiary Designations

Choosing beneficiaries for Traditional and Roth IRAs affects how assets are distributed after the account holder’s death. Unlike taxable assets that typically go through probate, IRA assets pass directly to named beneficiaries, avoiding delays and legal fees. However, different rules apply depending on the type of beneficiary and the account type.

Spouses who inherit an IRA have the most flexibility. They can roll the inherited funds into their own IRA, deferring distributions until they reach the required age. Alternatively, they can treat the account as an inherited IRA and follow the original owner’s distribution schedule, which may be beneficial if the surviving spouse is younger and wants to delay withdrawals.

Non-spouse beneficiaries, such as children or other heirs, must generally withdraw all funds within ten years under the SECURE Act of 2019, eliminating the option for lifetime “stretch” distributions. Exceptions exist for disabled individuals, minor children, and those less than ten years younger than the original account holder.

Tax treatment varies based on the type of IRA inherited. Traditional IRA beneficiaries must pay income tax on distributions, which can push them into a higher tax bracket if withdrawals are substantial. Roth IRA beneficiaries receive tax-free distributions if the account was open for at least five years before the original owner’s death. This makes Roth IRAs advantageous for wealth transfer, as heirs can allow investments to grow tax-free for up to a decade before withdrawing funds. Proper planning, including trusts or charitable donations, can further optimize tax efficiency and align with broader estate planning goals.