The rules and regulations about retirement accounts can be confusing, leaving many people with questions about IRAs and whether they can have more than one Roth IRA. Let’s clarify some of the most common questions about Roth IRAs, whether you can open more than one Roth IRA and the potential benefits of having multiple Roth IRA accounts.
What is a Roth IRA?
Introduced in 1997, a Roth IRA account is an alternative to a Traditional IRA account. The biggest difference between a Traditional IRA and a Roth IRA is the way your contributions are taxed.
With a Traditional IRA, your contributions are pre-tax. You pay no taxes on your retirement savings until you take distributions from your funds. After you retire and begin to withdraw money from a Traditional IRA, those withdrawals are taxed as income.
Contributions to a Roth IRA are post-tax. This means you pay taxes on your income before contributing to a Roth IRA. When you begin to withdraw funds, as long as you are 59 and a half years old and have had the account for more than 5 years, you do not pay taxes on the withdrawals.
There are many reasons why investors might prefer to pay taxes upfront and avoid income taxes later with a Roth IRA, while other investors prefer the pre-tax contributions of a Traditional IRA. Investors should compare the benefits and consider consulting with an expert when planning for their own retirement.
The Roth IRA tax filing deadline is typically April 15 of the following year.
Can You Have More Than One Roth IRA?
You can have more than one Roth IRA, and you can open more than one Roth IRA at any time. There is no limit to the number of Roth IRA accounts you can have. However, no matter how many Roth IRAs you have, your total contributions cannot exceed the limits set by the government.
In other words, if you are under 50 in 2024, you can only contribute $7,000 per year to a Roth IRA. You can choose to contribute all of it to a single account or divide it between two or more accounts, as long as the total contribution does not exceed $7,000. If you are over 50 you can contribute a maximum of $8,000 for 2024.
Why Would a Person Want More than One Roth IRAs?
There are pros and cons to having multiple Roth IRA accounts. Here are some of the reasons why a person would want more than one Roth IRA:
- Save for different purposes. An investor may want to have different IRAs for different purposes. They may open one Roth IRA for retirement income, and another for emergency funds.
- Diversify your portfolio. Opening more than one Roth IRA can be a simple way to diversify your retirement investments. If you want to make different types of investments and negotiate different levels of risk, using different IRAs can be an easy way to do so.
- Increase your insurance protection. Many investment accounts are covered by FDIC . If your single Roth IRA is nearing the $250,000 FDIC insurance protection limit, opening a second account at a different institution grants $250,000 protection to the second account as well.
- Simplify inheritance. If you plan on leaving some of your IRA savings or investments to loved ones, having multiple Roth IRA accounts can simplify the process of dividing and disbursing your assets among different people according to your wishes.
Despite these benefits, there can also be some drawbacks to having more than one Roth IRA. The biggest drawback of opening more than one Roth IRA is the additional paperwork required to administer multiple accounts, manage investments, and declare taxes. Having a single Roth IRA makes administration and documents much easier.
How Many IRAs Can You Have?
Yes, you can have multiple IRAs with different firms or brokerages, you may have to pay administration fees for each of them, which can impact your savings. Remember, the maximum contribution limits still apply.
Can You Contribute to Both Roth IRA and Traditional IRA?
Yes, you can contribute to both a Roth IRA and a Traditional IRA in the same year, as long as your total contribution doesn't exceed the annual limit set by the IRS.
Can I Convert a Traditional IRA to a Roth IRA?
Yes, this is called a Roth conversion and triggers a taxable event, requiring you to pay taxes on the amount moved to the Roth IRA. Depending on the size of the Traditional IRA, this can result in a significant tax obligation. Evaluate your tax situation before deciding.
How Can IRAR Help You with More than One Roth IRA?
Opening more than one Roth IRA is not the right choice for every investor and for every retirement strategy. When deciding how best to manage your retirement savings and plan for your long-term goals, it is best to talk with a tax professional.
IRAR offers free consultations to help you understand more about the different types of strategies and retirement accounts. Diversifying your IRA with alternative assets is one of the most important investments you will make in your life. At IRAR, we can explain the benefits of holding these assets in a self-directed Roth IRA so schedule a free consultation today.
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