Individual retirement accounts make up a third of the retirement assets in the U.S. As of year-end in 2017, Americans held $9.2 trillion in IRAs out of the $28.2 trillion in total retirement assets. IRAs offer a way for you to grow your savings on a tax-deferred basis, making them popular among people who want to save for when they will retire. If you are wanting to know, “Can I have multiple IRAs?” you should read further.
You might wonder how many IRAs can you have? The answer is that you can have as many IRAs as you want. The same answer is true if you are wondering, “How many Roth IRAs can you have?” However, the total amount that you make to each of your Roth or traditional accounts in regular contributions each year can only total the maximum allowed contributions.
What is an IRA and what is its purpose?
The IRA meaning is an individual retirement account or an individual retirement arrangement. This is a type of account that is designed to encourage you to save money for your retirement. IRAs are individual accounts that you can set up on your own regardless of your income as long as you have enough money to contribute to them.
The purpose of an IRA is to allow you to make contributions that are tax-advantaged. A regular IRA allows you to make pre-tax contributions and then to take a deduction on your taxes. The money that is held in the account can grow tax-free until you retire and begin taking distributions.
When you take distributions is when you will pay taxes on the amount that you take. If you have a Roth IRA, you will instead make contributions on a post-tax basis. Your money can then grow in the account, and you will not be taxed on your distributions after you retire.
Can I have two IRAs?
If you are wondering, “Can I have two IRAs?” or “can I open multiple Roth IRA accounts?” the answer is yes. It is possible for you to have two or more IRAs. If you are wondering how many IRAs can one person have, the answer is that you can have several. Situations in which you might have more than one IRA include if you roll over the savings from a 401k into a traditional IRA and also have a Roth IRA.
Similarly, you might have a SEP or SIMPLE IRA at your job and a Roth IRA outside of your work. If you have multiple IRA accounts, it is important that you understand the rules and how the contribution limits work.
What are the rules regarding multiple IRAs?
The IRS does not set rules about having multiple IRA accounts. However, when you are wondering, “Can I have two IRAs?” it is important to understand that the aggregate amount of your contributions to all of your individual IRA accounts cannot exceed the maximum for the year. If you are under age 50, you can contribute a total of $6,000 to traditional or Roth accounts.
If you are age 50 or older, you can contribute an additional $1,000 per year to your traditional or Roth account for a total of $7,000. This is a total amount, meaning that you cannot contribute that much to each separate IRA that you own.
Benefits of having multiple IRAs
There are a few benefits of having several IRAs. Some people have several IRAs so that they can track the performance of different types of investments. For example, you might have one IRA that is invested in mutual funds while another is invested in real estate. Having the accounts separated can make it easier to track how well each of your investments is performing.
Another benefit of having more than one IRA account is when you want to invest in alternative investments. Many IRA brokerage accounts will not allow you to invest in alternative investments. If you want to invest in those, you might need to open a self-directed IRA while having another IRA to hold your other types of investments.
Disadvantages of having multiple IRAs
There are some disadvantages to having several IRAs. If you open an IRA at a brokerage, most will charge you a fee to set it up and to manage it. Having several IRAs might mean that you will have more fees.
Having more than one IRA also might mean that you will have to spend more time tracking your different investments. Each new IRA is also likely to have its own minimum balance requirement. If you do not have enough savings set aside, it might be difficult to open multiple accounts.
Contribution limits for IRAs and having multiple accounts
For traditional and Roth accounts, there are annual contribution limits. The total regular contributions that you make during a year cannot exceed your maximum. This means that you will need to divide your contributions across your accounts and keep the total at or below the maximum contribution amount.
If you are 50 or younger, the total annual amount that you can contribute is $6,000. If you are age 50 or older, you can contribute a total of $7,000 per year. The amounts that are deposited into your account as a rollover from other accounts do not count to your yearly maximum.
IRA distributions and withdrawals
There are differences in the IRA distribution and withdrawal rules between traditional and Roth accounts. If you have a traditional account, you cannot take distributions before you reach age 59 1/2 unless an exception applies. If you do take an early withdrawal, you will be taxed and will have to pay a 10 percent early withdrawal penalty. Traditional accounts also have a required minimum distribution of 4 percent beginning when you reach age 70 1/2.
How does a Roth IRA work? Roth accounts have different rules. Since you will have already paid taxes when you make the contributions, you are able to withdraw some of your contributions before you reach age 59 1/2. However, you cannot withdraw your earnings without facing a penalty.
Roth accounts also do not have a required minimum distribution. If you don’t want to take distributions when you reach age 70 1/2, you do not have to with a Roth. “How many Roth IRA accounts can I have?” You can have more than one Roth account. However, the total amount of your contributions still must not exceed the maximum contributions for any year.
IRA losses, fees and tax deductibility
The IRS allows you to deduct losses from your IRA in certain situations. In order to take a deduction, the following must apply:
- You have withdrawn all of the money in your SEP, SIMPLE, traditional, or Roth during the year;
- Your basis in the account is less than the amount distributed; and
- The loss, after being combined with your other miscellaneous deductions, must exceed 2 percent of your Adjusted Gross Income (AGI).
There are different rules for tax deductibility. Depending on your income, you may be able to claim a deduction on your taxes for contributions that you make to a traditional account. However, you cannot claim a deduction for contributions that you make to a Roth account.
Having different types of IRAs
There are a number of different types of IRAs, including the following:
- Traditional accounts
- Roth accounts
- Spousal IRAs
- Inherited IRAs
- SIMPLE IRAs
- Self-directed IRAs
In answering the question, “Can I have multiple IRAs?” We will compare some examples using the most popular IRAs that people have.
Having both a Roth IRA and a traditional IRA
Some people choose to open both a Roth account and a traditional account. This might provide people with the deductions that they can get from the traditional account while also enjoying the ability to make withdrawals from the Roth accounts in retirement without being taxed on them.
Some people might have Roth accounts and inherited IRAs. An inherited IRA has special distribution rules that you will need to know. If you are not the spouse, you must take the distributions within five years of when the original owner died, and you will be taxed on them. If you are the spouse of the person who died, you can treat the IRA as your own.
Having both a 401k and a traditional IRA
Many people have both a 401k and a traditional account. For example, you might have a 401(k) through your employer and a traditional account on your own so that you can take advantage of the tax deductions that are available for a traditional IRA.
The contribution limits for a 401(k) account are much higher. If you are under age 50, you can contribute up to $19,000 per year. If you are older than age 50, you can contribute a maximum of $50,000. Your employer may offer matching at its discretion, and an employer might also allow borrowing. However, you will only have limited control over your investments in a 401(k).
Combining or separating spousal IRAs
How many Roth IRAs can a married couple have? Under IRS rules, you can each individually have as many IRAs as you want. However, the IRS does not allow spouses to combine their accounts. If you are married, you and your spouse can each contribute to your own account, and you are allowed to contribute to each other’s accounts. However, they cannot be combined into a single account.
Each spouse will be able to contribute a maximum of $6,000 per year to his or her account. If you are older than 50, you will each be able to contribute a maximum of $7,000 per year.
How M1 Finance works for investors
Investors who invest through M1 Finance are able to open their accounts and choose the investments that they want to include in their portfolios. They can set up automatic transfers so they can continue investing without having to give the process a great deal of thought. When money is invested, it flows to the investments that have been selected according to the percentages that the individual has assigned to each.
M1 Finance offers individual accounts, retirement accounts, trust accounts, and joint accounts. The company uses a blend of smart digital technology with the latest investment strategies and knowledge. When you invest with M1 Finance, you will not be charged any commissions or fees, allowing your money to grow more and to work harder for you. You can sign up now using the link on our website. If you would like more information about investing through M1 Finance or choosing a Roth vs traditional IRA, call us today at 312-600-2883.