In theory, there’s no limit to how many individual retirement accounts (IRAs) one person can have. A retirement saver could potentially maintain more than one traditional IRA, Roth IRA, rollover IRA, or simplified employee pension (SEP) IRA in order to gain certain tax advantages now, and potentially down the road.
That said, the rules governing these different IRA accounts vary considerably, and combining many IRAs — without running afoul of contribution limits or creating tax issues — can be difficult.
How Many IRAs Can You Have?
As mentioned above, you may open any number of individual retirement accounts (IRAs). The Internal Revenue Service (IRS) does not limit the number of IRAs you can have and will not penalize you for having multiple IRAs in your name, as long as you follow the rules and contribution limits for each account.
One or more IRAs could work in tandem with a 401(k) workplace retirement plan. For instance, you might put part of each paycheck into a 401(k) plan at work while also maxing out your traditional IRA contributions every year. There might be restrictions, though, about the amount you can deduct.
An individual’s annual contribution limit — for traditional and Roth IRAs combined — is $6,500 for the 2023 tax year. The limit is $7,500 for savers age 50 or older.
Recommended: What is an IRA?
Types of IRA
The two main account types are the traditional IRA and the Roth IRA. Again, your traditional IRA withdrawals are taxed at your ordinary income tax rate in retirement while Roth IRA money can be withdrawn tax-free.
With a traditional IRA, contributions can provide tax deductions when the money is deposited. Qualified distributions are taxed as ordinary income in retirement. Funds distributed before the account holder reaches age 59 ½ are usually subject to an added 10% tax.
Roth IRA contributions do not qualify for a deduction when deposited. However, when the account holder reaches age 59 ½, the money may be withdrawn tax-free. As with traditional IRAs, you can have multiple Roth IRAs.
There is a third type of IRA, the SEP IRA. These IRAs have higher contribution limits: up to $66,000 or 25% of compensation, whichever is less. But because these are employer-funded plans, they follow a different set of rules.
If you are self-employed and contributing to a SEP IRA on your own behalf, or if you work for a company with a SEP plan, you may or may not have the option of making traditional IRA contributions — but you could likely contribute to a Roth in addition to the SEP.
You may want to consult with a professional so you don’t over-contribute — or contribute less than you could have — or miss out on any of the potential tax benefits.
Advantages and Disadvantages of Multiple IRAs
Whether it makes sense for you to have multiple IRAs can depend on many factors, including your investment goals, financial situation, marital status, and career plans.
Here are some of the chief advantages of maintaining more than one IRA:
• Tax management. Traditional IRAs and Roth IRAs are taxed differently, as mentioned above. Also, traditional IRAs are subject to required minimum distributions (RMDs), which can increase your taxable income in retirement, while Roth IRAs are not. Having money in both types of IRA could make your retirement investing more tax-efficient.
• Diversification. Diversification can help manage investment risk. Holding money in multiple IRAs, each with a different investment strategy, could help you create a diversified portfolio.
Diversification may also benefit you from a tax perspective if you keep less tax-efficient investments in a traditional IRA and more tax-efficient ones in a Roth IRA.
• Access. Traditional IRAs do not permit early withdrawals before age 59 ½ without triggering a tax penalty. You can, however, withdraw your original contributions from a Roth IRA at any time without owing income tax or penalties on those distributions. Having one IRA of each type could make it less expensive for you to withdraw money early if needed. This is possible whether investing online or not.
• Avoiding RMDs. Traditional IRAs are subject to RMD rules, which dictate that you must begin taking minimum IRA distributions at age 72. If you don’t, the IRS can levy a steep tax penalty. Roth IRAs aren’t subject to RMD rules, so they could help you hang on to more assets as you age.
Opening and funding multiple IRAs isn’t always an optimal strategy. Here are some disadvantages that may make you reconsider having several IRAs:
• Contribution limits. The IRS caps the amount you can contribute in a given year. For 2023, your total contributions to all your IRAs cannot exceed $6,500 (or $7,500 if you’re 50 or older). So having multiple IRAs doesn’t give you an edge in saving up for retirement.
• Overweighting. When a significant share of your asset allocation is dedicated to a single stock, security, or sector, your portfolio is overweight. This overexposure can heighten your risk profile, such that a downturn in that investment could drag down your entire portfolio. Having multiple IRAs may put you at risk of being overweight if you’re not careful about reviewing the holdings in each account.
• Fees. Brokerages often charge various fees to maintain IRAs. Plus, within each IRA, you may have to pay additional fees for specific investments. For example, a mutual fund has an annual ownership cost signified by its expense ratio. If you’re not paying attention to each IRA’s fees, it’s possible that you could overpay and shrink your investment returns.
• Organization. Having multiple IRAs could present an organizational burden in the form of additional paperwork or, if you manage your IRAs online, logging in to multiple brokerages or robo-advisor platforms. You may also worry about increased risk for cybercrime.
Reasons You Might Want More Than One IRA
Evaluating your investment goals can help you decide if having more than one IRA makes sense for you. But you may need extra accounts if you’re:
• Rolling over a 401(k). When separating from your employer, you could leave your 401(k) money where it is or roll it into a traditional IRA instead. If you open a rollover IRA and already have a Roth account too, you may end up with multiple IRAs.
• Planning a backdoor Roth. Roth IRAs offer tax-free distributions but there’s a catch: To fund one, you have to meet eligibility requirements pertaining to your income and filing status. People who are over the income limit sometimes work around it by setting up a traditional IRA and later transferring some of that money to a Roth IRA. Taxes are levied on the transferred amount. This arrangement is known as a Roth conversion or backdoor Roth.
• Married and the sole income-earner. The IRS allows married couples who file a joint tax return to each contribute to IRAs, even when one spouse does not have taxable compensation. So if you’re the breadwinner in your relationship, you could set up an IRA for yourself and open a spousal IRA to make contributions on behalf of your spouse.
• Self-employed or plan to be. People who are self-employed can use traditional, Roth, or SEP IRAs to save for retirement. You might end up with multiple IRAs if you were an employee who had a traditional or Roth IRA, then later went out on your own as an entrepreneur. You could then open a SEP IRA, which allows for tax-deductible contributions and a higher annual contribution limit ($66,000 in 2023).
Reasons You Might Want Your IRAs With Different Companies
Whether you’re planning to open your first IRA or your fifth, it’s important to choose the right place to keep your retirement savings. You can open an IRA with a traditional broker, an online brokerage, or sometimes at your bank or credit union.
So why would you want to have your IRAs in different places? Two big reasons for that center on investment options and insurance.
Setting up IRAs at different brokerages could offer you greater exposure to a wider variety of investments. Every brokerage has its own policies on IRA assets. One brokerage might lean almost exclusively toward investing in exchange-traded funds (ETFs) or index funds, for example, while another might allow you to purchase individual stocks or bonds through your IRA.
You can also benefit from increased insurance coverage. The Securities Investor Protection Corporation (SIPC) insures Roth IRAs and other eligible investment accounts up to $500,000 per person. Under those rules, you could have a traditional IRA at one brokerage and a Roth IRA at another and they’d both be covered up to $500,000.
Note: SIPC coverage only protects you against the possibility of your brokerage failing, not against any financial losses associated with changes in the value of your investments.
How to Transfer an IRA to Another Investment Company
It’s fairly straightforward to move an IRA from one brokerage to another. First you need to set up an IRA at the new brokerage. Then you’d contact your current brokerage to initiate the transfer of some or all of your IRA funds.
You can request a trustee-to-trustee transfer, which allows your current IRA company to move the money to the new IRA on your behalf. No taxes are withheld on the transfer amount and you also avoid the risk of triggering a tax penalty.
The IRS also allows 60-day rollovers, in which you get a distribution from your existing IRA then redeposit it into your new retirement account. Taxes are withheld, so you’ll have to make that amount up when you deposit the money to your new IRA. If you fail to complete the rollover within 60 days, the IRS treats the deal as a taxable distribution.
Investing in multiple IRAs is perfectly legal and, in theory, you can have an unlimited number of them. The IRS’s annual limits on contributions apply across all your accounts, however. Traditional and Roth IRAs have different tax rules and can sometimes be useful to offset each other. SEP IRAs offer the potential to save more, thanks to their higher contribution limits. Wage earners can often contribute to separate accounts for their non-working spouses, potentially doubling the amount of allowable contributions.
If you have yet to set up an IRA, getting started is easier than you might think. With SoFi Invest, you can open a traditional or Roth IRA. And you may want to consider doing a rollover IRA, where you roll over old 401(k) funds so that you can better manage all your retirement money.
SoFi makes the rollover process seamless and simple, so you don’t have to worry about transferring funds yourself, or potentially incurring a penalty. There are no rollover fees, and you can complete your 401(k) rollover without a lot of time or hassle.
Does it make sense to have multiple IRAs?
Having more than one IRA could make sense for some people, depending on their investment strategies. When maintaining multiple IRAs, the most important thing to keep in mind are the limits on annual contributions. It’s also helpful to weigh the investment options offered and the fees you might pay to own multiple IRAs.
Can I have both a traditional and a Roth IRA?
Yes, you can have both a traditional IRA and a Roth IRA. However, your total contribution to all your IRAs cannot exceed the annual limits allowed by the IRS.
How many Roth IRAs can I have?
A person can have any number of Roth IRAs. The IRS does, however, set guidelines on who can contribute to a Roth IRA and the maximum amount you can contribute each year.
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