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.
With a Roth IRA, you pay taxes on your income before contributing it to your 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.
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 2023, you can only contribute $6,500 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 $6,500.
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?
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.
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.
FAQs
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 2023, you can only contribute $6,500 per year to a Roth IRA.
Is it a good idea to have multiple Roth IRAs? ›
Investment diversification
Having IRAs at multiple financial firms can give you exposure to different types of investments and even different investing strategies.
Can you contribute 6000 to multiple Roth IRAs? ›
The IRS sets no cap on the number of IRAs you can own. However, there is a limit set on the amount of money you can contribute in total to your IRAs, regardless of whether they're Roth or traditional accounts. The IRS currently caps contributions to Roth and traditional IRAs at $7,000 per year for those under 50.
Can I contribute $5000 to both a Roth and traditional IRA? ›
You may contribute simultaneously to a traditional IRA and a Roth IRA (subject to eligibility) as long as the total contributed to all (traditional or Roth) IRAs totals no more than $7,000 ($8,000 if you're age 50 or older) for the 2024 tax year.
Can you put more than $6000 in a Roth IRA? ›
More In Retirement Plans
For 2024, the total contributions you make each year to all of your traditional IRAs and Roth IRAs can't be more than: $7,000 ($8,000 if you're age 50 or older), or. If less, your taxable compensation for the year.
How many Roth IRA millionaires are there? ›
In fact, Fidelity noted that as of the end of 2023, a record number of people -- 391,562 -- had balances of a million or more in their IRAs.
Can I split my Roth IRA into two accounts? ›
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.
What is a backdoor Roth? ›
Backdoor Roth IRA: A backdoor Roth IRA is a strategy for high-income earners who exceed Roth IRA contribution income limits. It involves making non-deductible contributions to a traditional IRA and then converting those funds into a Roth IRA. This allows high allows high earners to take advantage of Roth IRA benefits.
How does the IRS know if you over contribute to a Roth IRA? ›
The IRS requires the 1099-R for excess contributions to be created in the year the excess contribution is removed the from your traditional or Roth IRA. Box 7 of the 1099-R will report whether you removed a contribution that was deposited in the current or prior year for timely return of excess requests.
Should I max out my Roth IRA? ›
Can Benefit You Save More if You Have Less Income. Many lower-income workers lack access to employer-sponsored plans and have limited funds to save, which makes traditional savings methods less viable. Therefore, maxing out your Roth IRA can benefit you, even with a lower income.
Best Roth IRA accounts of September 2024:
- Charles Schwab.
- Wealthfront.
- Betterment.
- Fidelity Investments.
- Interactive Brokers.
- Fundrise.
- Schwab Intelligent Portfolios.
- Vanguard.
The point of a Roth IRA is that it's already taxed money that grows tax-free. So, to convert your traditional IRA to a Roth IRA you'll have to pay ordinary income taxes on your traditional IRA contributions in the year of the conversion before they “count” as Roth IRA funds.
Should I convert my IRA to a Roth after age 60? ›
Converting an IRA to Roth After Age 60. Retirement savers who convert pre-tax retirement accounts such as IRAs to after-tax Roth IRAs after reaching age 60 can keep growing funds tax-free and then make withdrawals in retirement without paying taxes.
What is the penalty for putting too much in a Roth IRA? ›
If you don't remove excess contributions and any investment earnings from those contributions by the tax filing deadline plus any extensions, you may have to pay a 6% penalty on those contributions every year until they are removed. Visit the IRSOpens in a new window for more information on tax penalties for IRAs.
Can each spouse contribute $6,000 to Roth IRA? ›
Spousal IRA contribution limits
That amount goes up to $7,500 when that person turns 50, and the plan can be set up as either a Roth IRA or a Traditional IRA. For 2024, the limit increases to $7,000 for each spouse ($8,000 if age 50 or older).
Can a married couple have two Roth IRAs? ›
If you file a joint return and have taxable compensation, you and your spouse can both contribute to your own separate IRAs. Your total contributions to both your IRA and your spouse's IRA may not exceed your joint taxable income or the annual contribution limit on IRAs times two, whichever is less.
Should you max out Roth IRA at once? ›
Therefore, maxing out your Roth IRA can benefit you, even with a lower income. Because contributions are made with after-tax dollars, qualified withdrawals in retirement are tax-free, and can thereby help you reduce your long-term tax burden.
Can you have too much in a Roth IRA? ›
Contributing to a Roth IRA can be a great way to save for retirement but putting too much money into your retirement account in any given year can trigger tax penalties. Fortunately, there are several ways to fix the problem and possibly avoid the penalties.
How many different investments should you have in Roth IRA? ›
Ideally, a strong portfolio will contain a single U.S. stock index fund, which provides broad exposure to U.S. economic growth, and a single U.S. bond index fund, which provides exposure to relatively safer income-generating assets.
Should I combine my Roth IRAs? ›
You can combine IRAs
Combining them could lead to less paperwork and lower costs. A larger balance in a single account, for instance, could mean having a low-balance fee waived. At Vanguard, with most of our index funds, an invested balance in excess of $3,000 would qualify you to own lower-cost Admiral™ Shares.
