There’s no limit to the number of IRA accounts that you can open, but your annual contributions are limited to the Internal Revenue Service (IRS) maximum across all your IRAs. The contribution limit for 2023 is $6,500 ($7,000 in 2024) for people under the age of 50, so if you have two IRA accounts you could contribute $3,250 to each or in any other combination you like.
Even though you won’t be able to boost your overall contributions by opening more than one IRA account, there are some valuable benefits to having multiple accounts. Here are the key things to consider.
Benefits of multiple IRA accounts
Tax diversification
Tax savings are a major part of how an IRA works, so by opening and contributing to both a traditional and Roth IRA, you’ll be able to take advantage of the different tax benefits offered by each account. Contributions to a traditional IRA are made pre-tax and give you an upfront tax deduction, while Roth contributions are made after tax, and don’t offer you an immediate benefit. But you won’t pay taxes on your Roth withdrawals as long as you can wait until age 59 ½, while you will owe taxes on what you take out of the traditional IRA.
Be sure to understand the key differences between the traditional IRA and the Roth IRA.
Different investment approaches
Having multiple accounts also allows you to implement different investment strategies in each account. You might open an IRA with a robo-advisor that takes a low-cost approach to building a portfolio through ETFs, but you could also scratch your stock-picking itch by having an account with an online broker such as Charles Schwab or Fidelity.
Splitting your contributions can help you stay on your long-term investment plan using the robo-advisor while also giving you the chance to invest on your own.
Withdrawal options
By having both a traditional and Roth IRA, you’ll also be able to benefit from the different rules each account has about withdrawals, giving you a lot of flexibility.
A Roth IRA allows contributions to the account (not the growth due to investments) to be withdrawn at any time without penalty. You’ll typically owe a penalty if you make early withdrawals from a traditional IRA, but there are some instances where the penalty is waived.
Traditional IRAs also require you to take money out beginning at age 73, while you never have to take required minimum distributions from a Roth IRA.
Additional insurance coverage
Bank and brokerage failures are rare, but when one does occur, you are covered thanks to the Federal Deposit Insurance Corporation (FDIC) and the Securities Investor Protection Corporation (SIPC). You’re covered up to a maximum of $250,000 by the FDIC per depositor, per FDIC-insured bank, per ownership category and up to $500,000 by the SIPC.
However, if you hold a Roth and a traditional IRA at the same firm, they’re considered separate entities and each account is covered up to $500,000. Remember that this insurance doesn’t cover investment losses.
Simplified beneficiaries
You’ll name beneficiaries to your IRA accounts when you sign up, but it can be easier on your heirs if each of them is listed as the primary beneficiary on a separate IRA account. Tensions can arise when estates are being settled, so if one person is the primary beneficiary and others are listed as contingent beneficiaries it could create a problem. Multiple accounts can help mitigate this issue and ensure that your money goes where you want it to.
Drawbacks of multiple IRA accounts
Complexity
Not surprisingly, one of the biggest downsides to having multiple accounts is the additional paperwork and complexity that comes with having more than one account. Each account will have its own set of disclosure forms, investment options and tax issues. Much of this can be done online, but it is still a hassle to manage.
It’s also more difficult to get a picture of your overall portfolio when you have multiple accounts, sometimes at separate firms. If you’re trying to understand whether you’re sufficiently diversified or have too much exposure to one area, you’ll want to combine all your accounts to get a complete picture of your financial situation.
Fees
There can be account fees related to having an IRA at some firms, so be careful that you aren’t paying more in fees than you’re getting in benefits from having multiple accounts. Fees eat into your investment returns over time and can keep you from achieving your financial goals.
If your account fees are on the high side, consider moving your money to a firm where the fees are lower or avoid opening multiple accounts at that firm.
How to decide the right number of IRA accounts for you
There are benefits to having both a traditional and Roth IRA. A Roth IRA allows you to make after-tax contributions early in your career when you’re more likely to be in a lower tax bracket. You’ll also have the flexibility of withdrawing contributions early if something unexpected arises.
A traditional IRA is valuable to those looking to lower their taxable income by making pre-tax contributions. It’s also where you’ll roll over money from traditional 401(k)s at previous employers. You’ll have more investment options in an IRA than you would keeping the money in the employer-sponsored plan.
If you’re married, you might also consider opening an account for your significant other if they don’t already have one. Retirement accounts can’t be joint accounts, but both you and your spouse can contribute to your own accounts. Even if your spouse has little or no income, you’ll be able to make spousal contributions as long as you have earned income, allowing you to double your contributions for retirement savings. The accounts can be traditional or Roth IRAs.
(If you don’t already have an account opened, here are some of the best IRA accounts to consider.)
Bottom line
There’s no limit to the number of IRA accounts you can have, but your contributions must stay within the annual limit across all accounts. Having multiple accounts gives you added options related to taxes, investments and withdrawals, but it can make your investing life a bit more complicated to manage. Think through your financial situation and determine how many IRA accounts make the most sense for you.
