IRA Rollover

Posts Tagged ‘investing’

Question: How many IRA account can you have?

Scenario 1 – I have a Roth IRA that I contributed to. Then I also have a Rollover IRA which I roll over my 401K from my previous employers into. Can I still open a Traditional IRA or is it the same as the Rollover IRA? So are you limited to one after tax and one before tax IRA?
.
Scenario 2 – Is there a limit of how much of your pretax income can you contribute to either a 401K or a traditional IRA? Someone told my brother that he cannot contribute to a Traditional IRA, only a Roth IRA and I don’t understand why. He does not owe any IRA currently, he only make contribution to his 401K. Is it because he reaches a certain limit with his contribution with his 401K that’s why he can’t open an IRA with his pretax income anymore?

Answer: You can have multiple IRAs, just that its a bad idea to have more than 1. Why? It may be difficult for you to track your investments, you are probably paying custodial fees for each IRA, you are probably too diversified that you are not earning a high rate of return.

Scenario 1: Your rollover IRA is a traditional IRA. Currently you can only roll your 401k into a traditional IRA. 12 months after that, you can roll it over again into a Roth IRA.

Scenario 2: In IRAs (either traditional or Roth), there is an annual contribution limit. For 2006-2007, you can contribute up to $4000/year ($5000/year if you are age 50 and above). For 2008, its $5000 ($6000 if you are age 50 and above). In 401k, there is also a contribution limit. For 2006, there is $15,000 limit ($20,000 if you are age 50 and above). For 2007, its $15,500 ($20,500 if you are age 50 and above).

You can contribute to a Traditional and Roth IRA as long as your total contributions does not go above the annual limit. So basically, you treat your contributions to Traditional and a Roth as one contribution.

Something you should know: Not everyone can get a Roth IRA. If you are single and your adjusted gross income (AGI) is above $110,000, you cannot get a Roth IRA. If you are married and filing jointly (or qualify widow(er)) and your AGI is above $160,000, you do not qualify for a Roth IRA. If you are married, but filing separately, and the spouse lives with you, you do not qualify for a Roth IRA if your AGI is above $10,000. Recently, Congress past an act that says that anyone can have a Roth IRA starting in 2010. Until then, if your income is above a certain limit, then you should setup a Traditional IRA and later move it into a Roth IRA.

Ira Glass on Storytelling #3