Can I Split My Traditional IRA Into Two Accounts?

Traditional IRAs allow anyone with earned income to contribute. However, there may be certain income restrictions applicable for tax deductions.

Contributions to an IRA typically grow tax deferred, with withdrawals taxed at your ordinary income tax rate in retirement. This deferral can make an enormous difference for those anticipating lower tax brackets in their golden years.

Contribution Limits

Traditional IRAs provide tax benefits to anyone earning income, with taxes due when withdrawing the funds. Each year the IRS sets contribution limits which adjust with inflation – for 2023 this limit was $6,500 while in 2024 it rose to $7,000. Those aged 50 or over may make additional catch-up contributions.

Contributions made to a traditional IRA cannot be deducted if you are covered by an employer-provided retirement plan, such as 401(k) or 403(b). Furthermore, when your modified adjusted gross income exceeds certain levels, deductions become reduced or even negated altogether.

Avoid those limits by contributing to a Simplified Employee Pension (SEP) IRA or solo 401(k), available exclusively to self-employed individuals and small business owners. With these accounts, self-employed workers and owners of small businesses may contribute up to 25% of net self-employment earnings – up to $69,000 in 2024 for individuals under age 50 – as long as contributions do not exceed these limits; any excess will require payment of penalties.

Taxes on Withdrawals

As with other tax-deferred accounts, traditional IRA investments don’t incur income taxes until withdrawals are made; withdrawals are then taxed as ordinary income unless used for one of the “qualified reasons.”

Withdrawals from traditional IRAs depend on your age; for those under 59 1/2, early withdrawal penalties of 10% plus income taxes typically apply.

Assuming you pay your taxes in full every year, early withdrawal penalties can be avoided by using the funds for homebuying, tuition fees or medical costs; however, you still must file a tax return in the year of withdrawal. Before withdrawing funds from an IRA account, be sure to consult a financial advisor regarding tax repercussions; alternatively you could open a Roth IRA that allows tax-free withdrawals in retirement.

Required Minimum Distributions (RMDs)

At your Required Beginning Date (RMD), which falls April 1 of the year after your 73rd birthday, withdrawals must begin to be taken from all retirement accounts. Your RMD is calculated using a formula which incorporates your prior December 31 account balance with one of the IRS tables as its divisors.

Depending on the amount you withdraw, this could cause your taxable income to increase significantly and affect taxation of Social Security benefits and Medicare Part B premiums. Consult with a financial professional and tax planner to make sure you take appropriate amounts each year.

Beneficiaries of IRAs and employer plans must take their required minimum distributions on time to avoid steep penalties. To make the process simpler, consolidating all your IRAs and 403(b) accounts into one can make taking your RMD simpler.


Transferring an IRA allows you to move money between similar retirement accounts at different financial institutions without changing their account type (with the exception of moving a SIMPLE IRA to traditional IRA, which is considered a rollover).

Switching custodians may be beneficial if your current plan charges higher fees or doesn’t offer enough investment options that meet your needs, or perhaps you prefer taking an “expert-less” approach with a robo-advisor that provides automated investment advice at significantly reduced fees compared to traditional investment managers.

Traditional IRAs allow you to make pre-tax or after-tax contributions and allow the funds to grow tax-deferred until you withdraw them in retirement. Withdrawals will then be taxed according to your income tax rate and penalties can be avoided by setting up “substantially equal periodic payments” until age 59 1/2 is reached.

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