How many IRA accounts can I have?

When saving for retirement, one of the retirement account options that retirement savers have is an individual retirement account (IRA). A traditional IRA allows retirement savers to make tax-deductible contributions, and it is a tax-advantaged way to accumulate retirement savings. For most retirement savers, having multiple IRAs may seem like a favorable option. But, is it allowed?

There is no cap on the number of IRAs you can have at any time. You can have multiple IRAs of the same type or different types. For example, you can decide to have multiple traditional IRAs or multiple Roth IRAs, or have a mix of different types of IRAs. However, the IRS limits the annual contribution limits across all your IRAs, and you won’t be able to increase your overall contributions by having multiple IRAs.

How many IRAs does the IRS allow?

There is no limit on the number of IRAs you can open at a time. The IRS allows retirement savers to have two or more IRAs per person. You can choose to have multiple IRAs of the same type, or have a mix of different types of IRAs like traditional IRAs and Roth IRAs. However, the IRS limits the aggregate amount of contributions you can make to all your IRAs.

Generally, the amount you can contribute to all IRAs in your name cannot exceed the annual contribution limit for the year. For 2022, you can contribute a maximum of $6000 to a traditional or Roth IRA, or $7000 if you are 50 or older. This means you cannot exceed this limit cumulatively across all your separate IRAs.

Can you have both a Traditional IRA and Roth IRA?

You can have both traditional IRA and Roth IRA at the same time to enjoy the benefits of both worlds. A traditional IRA is a better option if you are in a higher tax bracket now, and you want to get a deduction to lower your taxable income.

A Roth IRA offers the benefit of tax-free distributions in retirement, but you won't get a tax deduction when you contribute to the account. With a Roth IRA, you will contribute after-tax dollars, meaning you pay taxes when you contribute to the account.

While anyone with an earned income can contribute to a traditional IRA, you can only contribute to a Roth IRA if your MAGI is below certain IRS limits. However, if you are locked out of a Roth IRA due to high-income limits, you can get around this problem by using a backdoor Roth IRA. This involves contributing to a traditional IRA and later converting it to a Roth IRA.

Benefits of multiple IRA accounts

Here are some of the benefits of having multiple IRAs:

Tax benefit

When you contribute to multiple IRA accounts like a traditional IRA and a Roth IRA, you get the tax benefits that each IRA provides. If you have a traditional IRA account, you can postpone paying taxes on the contributions until when you withdraw money from the account. For a Roth IRA, you will pay taxes on the contributions so that withdrawals in retirement will be tax-free. To make a qualified distribution, you must be 59 ½ or older and held the account for at least five years.

Diversified investments

Instead of investing all your retirement savings, having multiple IRAs allows you to split your contributions across several investments to get exposure to different types of investments. You can set up one IRA at a Robo-advisor that builds a portfolio through ETFs, and another IRA with an online brokerage.

Withdrawal options

If you have several IRAs, you will benefit from the withdrawal rules of each type of account. You can withdraw Roth IRA contributions tax and penalty-free at any time, while earnings generated from Roth IRA contributions can only be withdrawn tax and penalty-free after age 59 ½.  

If you also have a traditional IRA, you may be allowed to make hardship withdrawals penalty-free for specific purposes. You can also take penalty-free distributions after age 59 ½, but you will still pay income taxes on the distributions. Once you attain age 72, you must start taking the mandatory distributions from the account.

Estate Planning

When you open an IRA, you can name the primary beneficiary and contingent beneficiaries who will inherit your IRA when you die. These beneficiaries can be your spouse, children, brothers, sisters, parents, grandchildren, etc. However, having multiple beneficiaries on one IRA can complicate the distribution process and create disagreements among the beneficiaries. With multiple IRAs, you can choose to have one beneficiary per account to streamline the distribution process.

Drawbacks of multiple IRA accounts

Fees

When you have multiple IRAs, you may be required to pay various 401(k) fees to maintain your account. These fees eat into your investment returns over time, and you should review these fees continuously to make sure you are not paying more in fees than the returns you are getting. If you are paying high fees, you should consider rolling over the IRAs into one IRA to reduce the fees.

Increased paperwork

When you have multiple IRAs, it means you will receive multiple paperwork from the brokerage. Some of this paperwork include tax forms, retirement notices, account statements, and privacy notices. This means you might miss out on important communications from the plan provider.