Can You Have More Than One Roth IRA?

Individual Retirement Accounts are the most popular way to save for retirement. Roth IRAs are tax-deferred individual retirement accounts that allow you to grow your savings without any further tax liabilities. 

One of the most attractive features of these accounts is that you can customize the investments as you like and make withdrawals whenever you want. You can even control what happens to the IRA after you die. 

However, the rules and regulations applying to these retirement accounts can be confusing for people, leaving them with questions about them. One of the common concerns is whether Can You Have More Than One Roth IRA. In this post, let us try to throw some light on this topic and discuss the implications associated with opening more than one account. 

What Is Roth IRA?

What Is Roth IRA

A Roth IRA is an alternative to a traditional individual retirement account and the two differ in a few ways. They differ largely in the way the two are taxed. The contributions made to a traditional IRA are pre-tax which means you don’t pay any tax before withdrawing the funds. Whenever you start making withdrawals from this account, you pay tax on the amount like income.  

On the contrary, you pay taxes on your money before contributing to a Roth IRA. When you start withdrawing funds from the account, you don’t pay taxes on the withdrawals if your account is opened before five years or more and you have completed 59.5 years. 

Can You Have More Than One Roth IRA?

YES, you can have more than one Roth retirement account and open multiple accounts at any time during your lifetime. 

If you are not sure about the maximum number of Roth IRAs you can have, it is worth noting that anybody can open any number of individual retirement accounts. There is no limit on how many Roth IRA accounts one can have. 

One can have multiple Roth IRAs in many cases. Here are some common scenarios:

  • You have a Roth IRA and roll an old 401k into a traditional retirement account
  • Your adjusted gross income has grown to a point where you are no longer eligible to contribute to a Roth IRA, so you opened another IRA
  • You already had a Roth IRA and inherited one
  • You had a Roth IRA and opened a traditional IRA to benefit from tax deduction
  • You have a traditional IRA at work and open a Roth IRA outside work

While there is no problem in holding multiple Roth IRAs along with traditional retirement accounts, it is important to understand the rules associated with this situation. 

What are the Rules About Multiple Roth IRAs?

There are no special laws regulating how multiple IRAs should work. However, when you are planning to have more than one Roth IRA, it is important to know the limit on the contributions you can make to these accounts. Regardless of the number of IRAs you open, you cannot contribute more than the fixed limit specified by the government.  

To be precise, the aggregate amount of your contributions made to different IRA accounts should not go over $60,000 if you are aged less than 50 years. 

If you are 50 or above, you are permitted to contribute an extra $1000 per year which means your total contribution to Roth or traditional IRAs should not exceed $7000 per year. It does not matter whether you put the amount into one account or distribute it among multiple accounts; the only requirement is that the total annual sum should not cross the set limit.

Advantages of Having Multiple Roth IRAs

Having more than one Roth IRA has several benefits. Let us discuss a few reasons one might want to open and operate multiple retirement accounts. 

1. Portfolio Diversification

Having Roth IRAs at different firms gives you exposure to different types of investments and is a great way to diversify your retirement portfolio. The use of multiple IRAs is a great way to make varied types of investments with different risk levels. 

2. Simplified Inheritance

Opening multiple Roth IRAs makes it easy to divide and disburse assets among beneficiaries. While every IRA can have multiple beneficiaries, having multiple accounts with different names on each simplifies the process and avoids any conflicts. 

3. Savings for Different Purposes

You can always open multiple Roth IRAs to serve different financial goals. You might keep one account for emergency funds while the other can serve as your retirement savings.

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4. Increased Insurance Protection

The FDIC may cover many investment accounts which means you can increase your fund protection by opening multiple IRAs. For example, if a retirement account has reached the protection limit for insurance, opening another account with a different institution gives you protection for this account as well. 

Though opening multiple Roth IRAs has advantages, it has a few drawbacks as well. The biggest con of opening more than one Roth IRA is the additional paperwork associated with multiple accounts and their tax management. 

A single Roth IRA would make documentation much easier. Moreover, if you open accounts with different firms, you need to bear the administration charges for each one of them which could affect your savings. 

When your investments are spread across accounts, retirement planning becomes more complicated as you have to monitor the performance of each one of them and rebalance the overall mix to stay profitable. You need to devise and implement a more effective and involved asset allocation strategy in this case.

Final Thoughts

Roth IRAs offer several benefits and have built-in flexibility that allows you to plan your retirement effectively. 

Depending on your requirement and situation, you can open as many Roth IRA accounts as you like unless the total yearly contribution to them does not exceed the limit set by the government. 

However, it is important to be informed of the implications of opening multiple IRAs before having more than one Roth IRA.

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