How Many IRAs Can You Have?
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Summary:
There’s no limit to how many IRAs you can have. In some cases, having multiple IRA accounts can even be beneficial to certain individuals. Having more than one IRA account can give you different investment options, be useful for estate planning, and give you more flexibility and additional tax benefits. The main caveat is that your total contribution limits for the year remain the same regardless of how many IRAs you have.
Unless you come from family money, you probably need to accumulate retirement savings to be comfortable in your later years. And, if your employer doesn’t offer a workplace retirement plan like a 401(k) or pension, individual retirement accounts (IRAs) are one of the best ways to save for your golden years.
Today we’ll discuss the two primary types of IRAs — traditional IRAs and Roth IRAs — the difference between the two, which is best for your retirement plans, and whether or not having multiple IRAs is the right decision for you. First, it’s important to understand how each account works.
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Traditional vs. Roth IRA — similarities and differences
Whether you have a traditional or Roth IRA (or both), they have similar goals in that they’re investing vehicles meant to save money for retirement. They also share the same amount of annual maximum contribution limits and can’t be accessed without penalty until age 59½. As part of the penalty, you’ll have to pay taxes on the funds in addition to an early withdrawal penalty.
However, they differ in a few important areas.
Traditional IRA
One of the key differences between a traditional IRA and a Roth IRA is how the funds are taxed. Traditional IRAs are funded through pre-tax dollars. This means you get a tax deduction during the years you make contributions. This reduces your taxable income and saves money in the short term while still building your retirement savings.
However, when you reach retirement age and start to withdraw money, you’ll pay income taxes on those funds at whatever your income tax rate is that year. This is often beneficial because, in most cases, retirees are now in a lower tax bracket than they were when they were working full-time.
Roth IRA
Roth IRA accounts, on the other hand, are funded through post-tax dollars so there are no immediate tax benefits like with traditional IRAs. But the nice thing is that the money grows tax-free and when you start to withdraw money in retirement, you won’t have to pay income taxes on those withdrawals.
Another difference between the two retirement accounts is that a Roth IRA has no required minimum distribution (RMD) when you reach the age of 72, like with a traditional IRA. This is a nice feature if you don’t need the money at the moment and would rather let it continue to grow inside the retirement account.
Annual contribution limits
As mentioned, the amount you can contribute annually to IRAs is the same whether you have just one IRA or multiple accounts. The limits for Roth IRA contributions are the same as they are for traditional IRAs, as long as you meet the income limits and tax-filing requirements (more on that later).
In short, this means that if you have multiple Roth IRA accounts or a combination of traditional and Roth IRAs, the total annual contribution limit encompasses all of those retirement accounts.
For example, as of 2023, the contribution limit is $6,500 per year. This means if you had two IRAs, you could deposit $3,250 in each account (or $5,000 in one IRA and $1,500 in another, or however you decide), for a combined total of $6,500.
IMPORTANT! If you are over the age of 50, you can tack on an extra $1,000 per year, known as a catch-up contribution. It should be noted that you can take advantage of the catch-up contribution whether you need to “catch up” or not. It’s a nice bonus that allows you to add more to your savings as you get closer to retirement age.
How many IRAs can you have?
Instead of asking how many IRAs you can have, consider how many IRAs should you have. In a nutshell, just because you can have multiple IRAs doesn’t necessarily mean it’s the right strategy for you.
Conversely, having multiple IRAs is sometimes the smart move for individuals who would like a little more diversity and flexibility with their retirement and investing plans.
What are the benefits of having multiple IRAs?
If you can only contribute a set amount to multiple IRAs, you might wonder what the point is of having more than one IRA. In some cases, like if you’re not interested in more complicated retirement planning and prefer to manage only one retirement account, a single IRA might be the right path for you. But there are some benefits of having multiple IRAs to consider.
Tax and withdrawal flexibility
As explained, when you withdraw funds from a traditional IRA, you have to pay income tax on that money. However, when you take cash out of your Roth, those IRA funds are tax-free.
So if, for example, you have a large expense one year, you may need more money than your required minimum IRA distributions provide. However, you also don’t want to pay more taxes. In that case, if you have a Roth IRA or multiple Roth IRAs, you have the flexibility to get the extra money you need from those accounts without paying any additional taxes.
Investment diversification
As any financial expert will tell you, having a diverse portfolio of assets is a solid investment and retirement strategy. Having multiple IRAs can give you the opportunity to experiment with different investing styles.
Of course, it goes without saying that having multiple IRAs does not insulate you from declines in the market. To get a better idea of how the stock market can affect your retirement savings, talk with one of the investment advisors below.
Estate planning
As you assess your estate and retirement plan, you may decide that two or more IRAs makes sense for you. For example, some people with multiple beneficiaries might want separate accounts for each child.
Spousal IRAs
If you’re married and your spouse makes little to no income, having multiple IRAs is a great idea. Because each IRA account can only have one owner, meaning spouses cannot hold a joint IRA account, you’re allowed to contribute annually to your spouse’s IRA using the same rules that apply to your individual IRA.
This means you can contribute a maximum of $6,500 (or $7,500 if over the age of 50) to their IRA in addition to your own, effectively doubling your retirement savings.
Is there a downside to having multiple IRAs?
While there are good reasons to have multiple IRA accounts, there are also a few potential drawbacks to managing more than one IRA account. For one thing, portfolio maintenance can be difficult enough for one account, much less two or more.
“Having both a separate Roth and traditional IRA could theoretically improve returns through optimized allocations across accounts,” says Dr. Richard Michaud, President and CEO of Frontier Advisors and author of Finance’s Wrong Turns, A New Foundation for Financial Markets, Asset Management, and Social Science. However, Michaud adds, that isn’t necessarily realistic for less experienced investors.
Another drawback to having multiple IRA accounts is the potential for more maintenance and investment fees associated with each account. Though they may seem small at first, these fees can take a big bite out of your retirement funds.
Should you have multiple IRAs?
Consider the pros and cons of having multiple IRAs carefully before deciding whether this is a good strategy for your retirement plan. Depending on your goals, time horizon, age, and financial situation, either strategy might work for you.
On the other hand, individuals who prefer less-complicated retirement planning can easily get by with a single IRA account.
Pro Tip
If you plan to have multiple IRAs with different providers, be sure to check the minimum balance requirements. While the IRS doesn’t require minimum balances, some IRA service providers might, and you probably want to avoid any extra fees if possible.
FAQs
How many Roth IRAs should you have?
While there is no limit to how many Roth IRAs you can have, there isn’t necessarily a huge incentive to have more than one. The funds in a Roth IRA have already been taxed and the distributions aren’t taxed, so there isn’t really a tax advantage to having more than one.
However, if you want to experiment with a different investment strategy, you might want more than one Roth IRA account.
What are the income limits for Roth IRA contributions?
In 2022, if you were a single taxpayer, your modified adjusted gross income (MAGI) must be less than $144,000; for 2023 that limit jumps to $153,000. If you’re married and filing jointly, the 2022 income limitation was $214,000 and went up to $228,000 in 2023.
If you make more than the MAGI limit, your contributions to multiple Roth accounts will be phased out or eliminated. See the detailed breakdown here.
At what age can you no longer put money in an IRA?
As of 2020, because of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, there is no longer an age limit on when you have to stop making contributions to your IRA accounts. Prior to 2020, workers could not make IRA contributions after the age of 70½.
Now, thanks to the SECURE Act, individuals of any age can make contributions to one or multiple IRAs as long as they have earned income. This is great news for workers who may have gotten a late start on their retirement savings or individuals who choose to continue working into their 70s and beyond.
What is considered a diversified portfolio?
A diversified portfolio should include a broad mix of assets. This can help minimize IRA losses by spreading out your risk over multiple securities. A strong portfolio might include a blend of mutual funds, bonds, short-term investments, and individual stocks, for example. The point is to minimize the investor’s exposure to any one type of asset.
Key Takeaways
- There is no limit to the number of IRAs you can have, including both Roth and traditional accounts.
- Regardless of the number of IRAs you hold, your total annual contributions cannot exceed more than $6,500 ($7,500 if older than age 50) across all accounts.
- A traditional IRA is funded with pre-tax contributions and qualified withdrawals are taxed as income. A Roth IRA is funded by post-tax dollars and enjoys tax-free distributions.
- Having multiple IRAs can be useful for tax and withdrawal flexibility, investment diversification, and estate planning.
- The downsides to having a number of IRAs include additional maintenance and investment fees, which can eat into your returns, and managing multiple accounts.
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