Multiple IRAs: How many accounts can you have?

  • By Brian Baker,
  • Bankrate.com
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There’s no limit to the number of IRA accounts that you can open, but your annual contributions are limited to the Internal Revenue Service (IRS) maximum across all your accounts. The contribution limit for 2021 is $6,000 for people under the age of 50, so if you have two IRA accounts you could contribute $3,000 to each.

Even though you won’t be able to boost your overall contributions by opening more than one IRA account, there are some benefits to having multiple accounts. Here are the key things to consider.

Benefits of multiple IRA accounts

Tax diversification

By opening and contributing to both a traditional and Roth IRA, you’ll be able to take advantage of the different tax benefits each account provides. Contributions to a traditional IRA are made pre-tax and give you an upfront tax deduction, while Roth contributions are made after tax, and don’t offer you an immediate benefit. But you won’t pay taxes on your Roth withdrawals as long as you can wait until age 59 ½, while you will owe taxes on what you take out of the traditional IRA.

Different investment approaches

Having multiple accounts also allows you to implement different investment strategies in each account. You might open an IRA with a robo-advisor that takes a low-cost approach to building a portfolio through ETFs, but you could also scratch your stock-picking itch by having an account with an online broker such as Charles Schwab (SCHW) or E-Trade.

Splitting your contributions can help you stay on your long-term investment plan while also giving you the chance to invest on your own.

Withdrawal options

By having both a traditional and Roth IRA, you’ll also be able to benefit from the different rules each account has about withdrawals.

A Roth IRA allows contributions to the account (not the growth due to investments) to be withdrawn at any time without penalty. You’ll typically owe a penalty if you make early withdrawals from a traditional IRA, but there are some instances where the penalty is waived.

Traditional IRAs also require you to take money out beginning at age 72, while you never have to take required minimum distributions from a Roth IRA.

Additional insurance coverage

Bank and brokerage failures are rare, but when one does occur, you are covered thanks to the Federal Deposit Insurance Corporation (FDIC) and the Securities Investor Protection Corporation (SIPC). You’re covered up to a maximum of $250,000 by the FDIC and up to $500,000 by the SIPC.

However, if you hold a Roth and a traditional IRA at the same firm, they’re considered separate entities and each account is covered up to $500,000. Remember that this insurance doesn’t cover investment losses.

Simplified beneficiaries

You’ll name beneficiaries to your IRA accounts when you sign up, but it can be easier on your heirs if each of them is listed as the primary beneficiary on a separate IRA account. Tensions can arise when estates are being settled, so if one person is the primary beneficiary and others are listed as contingent beneficiaries it could create a problem. Multiple accounts can help mitigate this issue.

Drawbacks of multiple IRA accounts

Complexity

Not surprisingly, one of the biggest downsides to having multiple accounts is the additional paperwork and complexity that comes with having more than one account. Each account will have its own set of disclosure forms, investment options and tax issues. Much of this can be done online, but it is still a hassle to manage.

It’s also more difficult to get a picture of your overall portfolio when you have multiple accounts, sometimes at separate firms. If you’re trying to understand whether you’re sufficiently diversified or have too much exposure to one area, you’ll want to combine all your accounts to get a complete picture of your financial situation.

Fees

There can be account fees related to having an IRA at some firms, so be careful that you aren’t paying more in fees than you’re getting in benefits from having multiple accounts. Fees eat into your investment returns over time and can keep you from achieving your financial goals.

If your account fees are on the high side, consider moving your money to a firm where the fees are lower or avoid opening multiple accounts at that firm.

How to decide the right number of IRA accounts for you

There are benefits to having both a traditional and Roth IRA. A Roth IRA allows you to make after-tax contributions early in your career when you’re more likely to be in a lower tax bracket. You’ll also have the flexibility of withdrawing contributions early if something unexpected arises.

A traditional IRA is valuable to those looking to lower their taxable income by making pre-tax contributions. It’s also where you’ll roll over money from 401(k)s at previous employers. You’ll have more investment options in an IRA than you would keeping the money in the employer-sponsored plan.

If you’re married, you might also consider opening an account for your significant other if they don’t already have one. Retirement accounts can’t be joint accounts, but both you and your spouse are able to contribute to your own accounts. Even if your spouse has little or no income, you’ll be able to make spousal contributions, allowing you to double your contributions for retirement savings.

Bottom line

There’s no limit to the number of IRA accounts you can have, but your contributions must stay within the annual limit across all accounts. Having multiple accounts gives you added options related to taxes, investments and withdrawals, but it can make your investing life a bit more complicated to manage. Think through your financial situation and determine how many IRA accounts makes the most sense for you.

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