Can I contribute $4k each to Traditional & Roth IRAs in same year?

Question

I have already contributed $4,000 to my Roth IRA at Vanguard for 2006. I was on the site to make a $1,000 contribution to my Traditional IRA, and the site said I've already made my maximum allowed contributions. I haven't contributed anything to my Traditional Roth this year.

I was under the impression I could contribute $4k each to a Roth and a Traditional IRA each year. Am I wrong?

A second question. I still have a 401K with a former employer. Can I contribute money into that still?

Answer 1

Sorry.....you cannot contribute to both the Traditional and the Roth at the 4K level each. You can only contribute a total of $4k to all IRA's this year. This limit is going up in future years, but you are topped out at 4K this year.

As for your 401K....you cannot contribute to the 401K after you have separated from the company, but you can roll it over into a traditional IRA without tax consequence or penalties for early distribution. If I were you I would crunch some numbers to see if it would be to your advantage to pay the taxes due if you were to roll the money into a Traditional IRA and then out to a ROTH IRA (Fyi.....you cannot roll the 401K money directly into a ROTH IRA).

The reason it is important to crunch these numbers is because you need to find out if you have enough time before you need the money to make up the tax cost today with the benefit of tax free accumulation in the ROTH.

Answer 2

To answer your 2nd question first...NO you may not contribute to a 401k with a former employer. You may want to roll it into your Roth or Traditional IRA.

You are only allowed to contribute $4000 annually in total to either type of IRA or a combination of both say $3000 to the Roth and $1000 to the Traditional. If you are self employed or have self employment income get a SEP IRA the contribution limits are much higher and they're easier that 401K's.

Answer 3

You can only contribute up to $4,000 in a traditional IRA or a Roth in total. You can put 4 in one or 4 in the other or 2 in each but the total can only be 4.

Answer 4

You can have as many IRA and Roth IRA accounts as you want, but the limit of 4k applies to everything in total. So you could put 2k in each or 4k in one and that's it.

http://invest-faq.com/articles/ret-plan-roth-ira.html

I'm not sure about the 401k, but typically, it costs a bit of money to have such a plan set up, so the company might or might not be willing to let you contribute money if you're not working there anymore. I'm not sure if you can legally or not. It's probably somewhere in the government codes somewhere.

http://en.wikipedia.org/wiki/401k

Answer 5

Call Vanguard!! but you can do both!! one is pre-tax and the other is after tax dollors.

As for the 401k- no you can't. But you can roll that into you Trad IRA