There is
no limit to the number of traditional individual retirement accounts (IRAs) you can set up. However, if you set up multiple IRAs, you can’t deposit more than the contribution limits for all of your accounts in a given year. With multiple IRAs, you can select multiple beneficiaries for each IRA account type. This is particularly beneficial if you no longer have your spouse with you and want to leave some of your IRA funds to your children instead.
You could set up an IRA with a robo-advisor (for cost-effective, automated portfolio management) and another IRA with a broker that offers stock trading, or two separate accounts with the same company if they offer both services. You can even have multiple of the same type of IRA, which means you can have multiple Roth IRAs, SEP IRAs, and traditional IRAs. For example, someone who earns a living doing two different jobs might want to manage both traditional IRAs and Roth IRAs according to their status, rather than lump the two incomes together. However, the rules for these different IRA accounts differ significantly, and it can be difficult to combine many IRAs without breaching contribution limits or causing tax problems.
It’s really up to you to decide whether setting up another account would really benefit you in your retirement plan or just another way to spend money on top of the fees you’re already paying to keep your IRA up and running. Diversification can also benefit you from a tax perspective if you make less tax-efficient investments in a traditional IRA and more tax-efficient investments in a Roth IRA. Again, your traditional IRA withdrawals are taxed at your normal income tax rate when you retire, while Roth IRA money can be withdrawn tax-free. If you have multiple IRAs, diversify your portfolio too, as you can choose to invest your annual IRA contribution in many different investments and not just one.
Traditional IRAs are subject to RMD rules, which require you to start taking advantage of minimum IRA distributions at age 72. Plus, traditional IRAs are subject to required minimum distributions (RMDs), which can increase your taxable income in retirement, while Roth IRAs aren’t. The Internal Revenue Service (IRS) doesn’t limit the number of IRAs you can have and won’t penalize you if you have multiple IRAs in your name, as long as you comply with the rules and contribution limits for each account. While a Roth IRA and a traditional IRA are similar, there are key differences that you should understand when you start saving. If you’re self-employed and contribute to a SEP IRA on your own behalf, or if you work for a company with a SEP plan, you may have the option to make traditional IRA contributions, but you could probably contribute to a Roth in addition to the SEP.
Having multiple IRAs can be an organizational effort in the form of additional paperwork or, if you manage your IRAs online, signing up with multiple brokers or robo-advisor platforms.
