From publication 590:
Roth IRAs and traditional IRAs. If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions for the year to all IRAs other than Roth IRAs.
Maybe this is why I struggle with taxes so much. That sentence from the IRS is nearly incomprehensible to me. Am I the only one?
OK, I read it a half dozen times, and I think I get it - but do they have to phrase it so t seems like it is contradicting itself? To me, that sentence structure says "it is the same except different". How does that help someone in the dark?
Is this what they are trying to say?
1) You can make contributions to both a Roth and a Traditional IRA.
2) The limits for your Roth contribution are set by:
2a) The limits for your Roth alone, minus...
2b) Any contributions made to any other non-Roth IRAs
Maybe it's just me, but the IRS wording makes it 100x harder than it is.
As a side note, I really wonder what the goal was. Is there really a reason for these different savings plans? Or did they just seem like a good idea at the time? I'd bet it is counter-productive. The people who need these the most probably get confused when people start comparing Roth, Trad, college savings plans, pre-tax, post-tax, paper or plastic, and just give up and go shopping instead.
There must be more effective ways to encourage people to save money. Throwing pages of hard to understand, boring, and changeable rules out there sure isn't a big incentive for most people I know.
-ERD50