Individual retirement accounts are very popular and make up a third of the retirement assets in the U.S.
As of the end of 2017, out of the $28.2 trillion in total retirement assets, Americans held $9.2 trillion in IRAs. IRAs are popular because they offer a way for you to grow your savings on a tax-deferred basis.
If you are wondering how many IRAs can you have to exploit to achieve maximum benefits, then you need to read on.
How many IRAs can you have?
The IRS doesn’t limit the number of IRAs a person can own. However, having multiple IRA accounts does not increase your annual contribution limits. For traditional IRAs and Roth IRA, the contribution limit is $6,000 in 2021 and 2022. If you’re age 50 or older, your contribution limit is $7,000.
In any given year, you can decide to split the money between your multiple IRAs types. That said, contribution limits do not apply if you decide to do an IRA rollover that involves transferring money from a former employer’s retirement plan, like a 401(k), into an IRA.
How many Roth IRAs can you have?
The good news is that there’s no limit on the number of Roth IRAs you can own. However, having more than one IRAs doesn’t increase the contribution limit.
Can I Have Two IRAs?
Yes, you can have multiple IRAs, such as SEP IRAs, Roth IRAs, and traditional IRAs. However, owning multiple IRAs does not increase your annual contribution limits.
Types of IRAs you can have
The different types of IRA you can own are:
OK, so I can have multiple IRAs, but should I?
The answer depends largely on your investment goals. Having multiple IRAs can be a good strategy if you are interested in:
- Tax diversification
- Naming multiple beneficiaries
- Exploring investment options that your current IRA doesn’t offer
Having multiple IRAs may not be a good option for you if you:
- Do not want to pay more in investment and management fees, particularly when your accounts are held at different brokerages.
- Are unable to meet the annual contribution limit right now. In this case, it’s better that you just focus on how to max out your current account before adding more IRAs to the mix.
We’ll discuss more on the benefits and drawbacks of having multiple IRAs later in this article.
Are there any rules for having multiple IRAs?
There are no rules about having multiple IRAs. However, when you are considering having more than one IRA, you need to understand that the total contribution amount of all your IRAs cannot exceed the maximum limit for the year. You can contribute a total of $6,000 to traditional or Roth accounts, and if you are age 50 and above, you can contribute a total of $7,000. Note that this is the total amount you can contribute. You cannot contribute that much to each of the IRAs you own.
Advantages of having multiple IRAs
Having multiple IRAs offers several benefits, including:
- Track your investments better: Having multiple IRAs help you track the performance of different types of investments. For example, if one of your IRAs is invested in real estate and the other in mutual funds, having the investments held in different IRAs makes it easier for you to track their performance.
- Diversify your tax: Having different types of IRAs offers different tax breaks. For example, a traditional IRA allows you to postpone paying tax until you start withdrawing from it. On the other hand, a Roth IRA doesn’t offer any upfront tax break on contributions, but withdrawals at retirement are tax-free.
- Invest in alternative investments: Most IRA brokerage accounts do not allow you to invest in alternative investments. Having a self-directed IRA allows you to invest in alternative investments. The other IRA can hold your other types of investments.
- Withdrawal flexibility: Different IRAs have different rules when it comes to withdrawals both before and during retirement. While Roth IRA contributions can be withdrawn penalty- and tax-free at any time for whatever reason, traditional IRAs are less flexible. They only allow penalty- and early tax-free withdrawals (before age 59½) if you qualify for an exemption. Moreover, withdrawals from a traditional IRA are mandatory after age 72. With Roth IRA, there are no such required minimum withdrawals.
- More insurance coverage for your cash and investments: SIPC and FDIC insurance on investment and deposit accounts cover your losses when the brokerage or bank that holds your IRA fails. For a single account holder at a single institution, SIPC coverage is capped at $500,000, and FDIC is capped at $250,00. When you have multiple IRA accounts, you increase your insurance coverage. For example, if you have two Roth IRAs, both SIPC-insured at the same institution, you qualify for coverage of only $500,000. But if you have a mix of Roth and traditional IRA at the same institution, both your accounts are treated as separate entities and are insured with $500,000 SIPC coverage for each.
- Simplified estate planning: The process of opening an IRA involves naming the beneficiaries. Having many IRA accounts allows you to name more than one beneficiary per IRA. Naming different people as a beneficiary on different IRAs can help mitigate beneficiary concerns after your retirement and beyond.
Disadvantages of having multiple IRAs
There are some disadvantages to having several IRAs, including:
- Added expenditure in terms of fees: Opening an IRA involves paying fees for setting it up and managing it. More IRAs mean more fees. Paying brokerage fees and investment fees for each of your IRA accounts can cut into your earning potential over time.
- Maintaining multiple accounts: Having more than one IRA also means that you need to invest your time tracking your different investments. Moreover, each IRA might have its own minimum balance requirement. If you have no savings set aside, you may find maintaining or opening multiple IRAs difficult.
- Increased paperwork: Having multiple IRAs means dealing with an exhaustive amount of paperwork, including privacy policies, notices of service updates/changes, tax forms, and other disclosures for each of the IRA account.
- Complicated portfolio maintenance and retirement planning: Your assets in multiple IRA accounts makes it difficult for you to monitor their performance. As a result, rebalancing your overall mix can be a complicated process.
Can you have both Traditional IRA and Roth IRA?
Yes, you can maintain both a traditional IRA and a Roth IRA. However, your total contribution should not exceed the Internal Revenue Service (IRS) limits set for any given year.
What’s the ideal number of IRAs you should have?
The ideal number is two. Having a Roth and traditional IRA, plus an employer-sponsored retirement plan like a 401(k) is an ideal combination.
- The Roth IRA gives you the benefits of penalty- and tax-free withdrawals of contributions before retirement and no required minimum withdrawals and tax-free distributions in retirement.
- You can rollover old workplace retirement plans into a traditional IRA. By doing so, you get better control over fees and access to more investment options as compared to your old 401(k) plan.
Can I contribute to IRA and 401(k)?
Yes. Many people have both a 401 (k) through their employer and a traditional account on their own. This allows them to take advantage of the tax deductions that are available for a traditional IRA.
We hope we’ve been able to answer your question about how many IRAs you can have. If you’re still wondering how multiple IRAs can help you make the most out of your retirement accounts, SD Retirement Plans can help, contact us now!
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning company based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last ten years has turned his focus to self-directed ira accounts and alternative investments. If you need help and guidance with traditional or alternative investments, call him today (866) 639-0066.