If you do a search for articles and information regarding both Traditional and Roth IRAs, you get a number of very good articles that will compare the two and end up by stating the different individuals will have different needs and expectations, therefore one or the other will mostly likely be suitable.

This position really makes me wonder who ever made the rule that you HAVE to have one or the other? I've had both types of IRAs for years in a portfolio plan that takes advantages of the strengths of each while minimizing the weaknesses. Research on the irs.gov website seems to indicate that they accept the theory as well.

Both the Roth IRA and the Traditional IRA allow an individual to make contributions up to a certain limit (this limit is determined by the I.R.S. and changes every couple of years) with 'catch up' allowances for individuals over a certain age. For the 2009 tax year, according to what's been published so far, for individuals under 50 years old, the maximum contributions to any combination of IRAs allowable is $5,000.00 or the amount of your taxable compensation for the year, whichever is the smaller amount. For folks 50 years or older, the maximum is amount is $6,000.00 or the amount of taxable compensation, again whichever is the smaller amount. For both categories of individuals, the amount of contribution is reduced as the individual's modified adjusted gross income exceeds certain dollar amounts. If you have a retirement plan at work, your contribution may be limited as well, so before making a bunch of contributions throught out the year, it is wise to figure out just where you are likely to end up come April 15th.

There is no limit, however, on the number of IRAs that you can have. After a certain point, it doesn't make a whole lot of sense, but the sky is the limit. The only limit is the combined dollar amount that can be contributed to all IRAs in one year.

PLEASE NOTE: Not everyone can contribute to IRAs and not everyone can take the retirement savings contribution credit!

If you can contribute and take the retirement savings contribution credit, having both types of IRAs gives you some flexibility as you are figuring your tax liability. Line 32 of the 1040 tax form lets you deduct contributions made to a Traditional IRA from your Total Income (Line 22) to figure your Adjusted Gross Income. Lowering your Total Income usually results in a smaller Total Tax and this is the primary reason that people use a Traditional IRA. Financial advisors have been telling people for years that the money in your Traditional IRA will be taxed when you withdraw it, at which time you will most likely have less income and a smaller tax liability. You can start withdrawing as early as 59 1/2 with no penalty, but you must start withdrawing by age 70 1/2 and there is a minimum amount that you must take out every year.

This bears repeating: At the time you begin withdrawing funds from your Traditional IRA (after 59 1/2) you are expected to have less taxable income than you do now. I'm not sure that this is really a situation that you would want to be planning on. All the growth that has occured in your Traditional IRA has not been taxed - you're going to be paying those taxes when you apparently have less disposable income. I can see a lot of problems with this theory, mainly increasing health care costs due to advancing age, increasing costs of living, a probability of higher tax rates and longer lives that will leave people worried about their finances in their declining years when they can no longer do anything about it.

A Roth IRA contribution does not lower your Total Income. It is 'after-tax' money meaning it is figured as part of the money you received this year and you will be paying tax on it now. However, when you are older, you can begin withdrawing the money in your Roth IRA without penalty any time after you are 59 1/2 years old and without a specific amount. You don't have to withdraw the money if you don't want to; this money could be left as part of your estate. Best of all, when you withdraw the money, it is not taxable. All the dividends and capital appreciation that has occurred (hopefully) is also tax free, meaning no inflated tax liability on money you may be needing to pay medical bills.

By using a combination of both IRAs, you can reduce you income tax liability in the current filing year AND set up a source of tax free money for your retirement. A good deal is that for some filers, the retirement savings contribution credit will reduce the acutal amount of tax owed through a refundable credit. A refundable credit means that if applying the credit will reduce the owed tax to less than zero, the filer is eligible for a refund. Not all credits are refundable and will just zero out the tax owed.

Due to the dollar ranges of the tax owed tables, there is a point where having deductible contributions reduces your tax less than a credit will. This point is different for every filer as there are other aspects of the tax return that affect the tax owed.

By figuring the amount of deductible contributions (Traditional IRA contribution) that will reduce the taxable income into a specific taxable income range, I can then figure the amount of contribution to the non-deductible contribution (Roth IRA contribution) and the amount of the retirement savings credit. In doing so, I set up two types of income for my retirement, taxable and tax free and usually make sure we are getting at least a small refund.

As a final note, I hold different types of investments in each account. The Roth IRA is comprised of mailing high yield dividend paying stocks, REITs and ETFs. The Traditional IRA consists of solid value stocks that should keep their share price with some growth and that will have gained considerable appreciation by the time I retire. This would be the solid foundation money where as the Roth IRA funds should be generating a very respectable annual income to enjoy tax free. The most important thing is that I will have an option when confronted with my retirement tax situation and that is what will help me sleep at night.