In short: As long as you meet the eligibility requirements, such as earning income from work, you can contribute to both a Roth account and a traditional IRA. Transferring money from a traditional IRA to a Roth IRA is called a conversion. If you don't have a basis in your traditional IRA, the full amount will be included in your income. Otherwise, the amount included in the income is calculated as if you were withdrawing money from a traditional IRA.
You can convert funds from your traditional IRA into a Roth IRA regardless of your income. If you can, it may be appropriate to contribute to both a traditional and a Roth IRA. Doing so will give you taxable and tax-free retirement options during retirement. Financial planners call this fiscal diversification, and it's usually a smart strategy when you're not sure what your fiscal outlook will be when you retire.
If your income is too high to deduct contributions to a traditional IRA, you may qualify for a Roth IRA. On the other hand, you may find that cash-generating assets, such as rental real estate, might be better placed in a Roth IRA. The only divorce-related exception for IRAs is if you transfer your interest in the IRA to a spouse or former spouse and the transfer is made under an instrument of divorce or separation (see section 408 (d) () of the IRC. If you're eligible to contribute to any of the IRAs and receive a deduction for contributions to a traditional IRA, it's worth considering what your tax rate might be when you start withdrawing funds.
In the meantime, you can continue to receive tax deductions by making contributions to the traditional IRA every year. Based on your AGI, you could get a credit of up to 50% of your contribution to an IRA or work retirement plan. Do not use Form 8606, Non-Deductible IRAs (PDF/PDF, Non-Deductible IRAs) to declare non-deductible contributions to a Roth IRA. For your traditional IRA contributions to be deductible, you must meet certain income thresholds.
Many people make their contribution to the IRA just before the tax deadline and after they have determined their MAGI for the fiscal year, and deposit the contribution into a money market fund. The new law also prohibits recharacterizing amounts transferred to a Roth IRA from other retirement plans, such as 401 (k) or 403 (b) plans. For example, with a combination of savings from a traditional IRA and a Roth IRA, you can withdraw distributions from your traditional IRA until you reach the top of your income tax bracket and then withdraw everything you need beyond that amount from a Roth IRA, which is tax-free, provided certain conditions are met. If neither you nor your spouse actively participated in a business plan, you can deduct your traditional IRA contributions regardless of how high your income is.
You can transfer your IRA to a qualified retirement plan (for example, a 401 (k) plan), assuming that the retirement plan has a text that allows you to accept this type of transfer. Each year's RMD is calculated by dividing the IRA balance as of December 31 of the previous year by the applicable distribution period or life expectancy. Consider the tax advantages and implications of both types of IRAs and remember that there are income limits for contributing to a Roth IRA.