There is no limit on the number of IRAs you can have. You can own multiple types of IRAs — traditional, Roth, SEP, spousal and so on — or even multiple IRAs of the same type at the same or different financial institutions.
That said, increasing your number of IRAs doesn’t necessarily increase the amount you can contribute annually. For Roth and traditional IRAs, that’s $6,000 in 2019, or $7,000 if you’re 50 or older. And you’re free to split that money between IRA types in any given year, if you want. (Contribution limits aren’t an issue if you’re doing an IRA rollover — transferring money from a former employer’s retirement plan, like a 401(k), into an individual account.)
But is having multiple IRAs a good idea? Here are the pros and cons.
The benefits of having multiple IRAs
Having multiple IRAs can help you fine-tune your tax strategy and gain access to more investment choices and increased account insurance. Here’s how:
Tax diversification: Different types of IRAs provide different tax breaks. A traditional IRA gives you an immediate tax deduction, allowing you to postpone what you owe the IRS until until you start withdrawing your savings from the account in retirement. With a Roth IRA, there’s no upfront tax break on contributions, but qualified withdrawals are completely tax-free. Here’s a deep dive on how traditional IRAs and Roth IRAs differ.
Investment diversification: Having IRAs at multiple financial firms can give you exposure to different types of investments and even different investing strategies. For example, let’s say you want the bulk of your retirement savings managed professionally, but you also want to use a portion to dabble in individual stocks on your own. You could set up one IRA at a robo-advisor (for low-cost, automated portfolio management) and another IRA at a discount brokerage that provides stock trading — or two separate accounts at the same firm if it offers both services. See this roundup of the best IRA providers to compare some of the top firms.
Flexibility on withdrawals: In addition to the differences in how your savings are taxed, traditional and Roth IRAs have different rules about withdrawals both before and during retirement. Roth IRA contributions (not earnings) can be withdrawn tax- and penalty-free at any time and for any reason. Traditional IRAs have less leeway, although they do allow early withdrawals (ones taken before age 59 ½) without penalty in certain circumstances. And unlike the Roth, withdrawals from a traditional IRA become mandatory in retirement after age 70 ½. There are no required minimum withdrawals with the Roth.
More insurance coverage for your cash and investments: In the unlikely event the brokerage or bank that holds your IRA fails, SIPC and FDIC insurance on investment and deposit accounts can cover your losses. Coverage is generally capped at $500,000 (SIPC) and $250,000 (FDIC) for a single account holder at a single institution, but there are ways to increase your coverage through multiple accounts. For example, if you have two Roth IRAs at the same SIPC-insured institution, you qualify for only $500,000 in coverage. But if you have a Roth and traditional IRA at the same institution, both accounts are considered separately insured entities with $500,000 SIPC coverage for each.
Simplified estate planning: Naming beneficiaries is part of the process of opening an IRA. While you can name more than one beneficiary per IRA (a primary and contingency), having different people named on separate accounts can mitigate beneficiary tiffs after you retire to the great beyond.
The drawbacks of multiple IRAs
The main drawback of multiple IRAs? The hassle factor. Here are some of the hurdles to consider:
Double (or quintuple) the paperwork: Red tape comes with the retirement account territory. Although it’s easier than ever to track and manage your money online, multiple accounts means dealing with multiple tax forms, notices of service changes/updates, privacy policies and other disclosures.
More complicated retirement planning and portfolio maintenance: Asset allocation, the art of finding the right balance between risk and reward in your portfolio, is a key part of retirement planning. When your assets are spread across multiple accounts, monitoring performance and rebalancing the overall mix to maintain a coherent investment strategy is more involved.
Added exposure to account and investment fees: It’s natural to pay the most attention to higher-balance accounts and let the smaller ones ride. But neglecting care and maintenance on any retirement savings account can lead to subpar investment returns, especially when it comes to investment fees — everything from brokerage fees to mutual fund sales loads — that erode your earning power over time.
What’s the right number of IRAs?
For most people, the number is at least two: Both a Roth and traditional IRA, in addition to a workplace retirement plan, if you’ve got one. Here’s why:
- The Roth IRA provides the most flexibility both before you retire (tax- and penalty-free withdrawals of contributions) and in retirement (tax-free distributions and no required minimum withdrawals). If you qualify to contribute to a Roth IRA, it’s well worth having one. Here are the current Roth limits.
- A traditional IRA is a smart choice for money from old workplace retirement plans, or if the upfront tax deduction incentivizes you to save more. You’ll likely get access to more investment options and more control over fees compared to your old 401(k). Plus, rolling the money from a plan funded by your pretax dollars into a traditional IRA, which treats taxes the same way, ensures no surprise bills from the IRS. See this 401(k) rollover guide for step-by-step directions.
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