Can you have more than one IRA? The short answer is yes, but the reasons you might want to do so are more complex. We take a look at why you might want to have more than one IRA account as well as some of the implications of doing so.
DOUBLE DIP: CAN YOU HAVE MORE THAN ONE IRA?
Individual retirement accounts (IRAs) allow you to save money from your income today to support yourself when you stop working. Money contributed to an IRA earns interest over time and also qualifies for various tax advantages. Many people set up personal IRAs to supplement any employee-sponsored 401(k) retirement benefits they might already have through work.
Making contributions to an IRA early in your career is a great way to build a retirement nest egg, and the tax savings possible over time are significant. You can usually begin to withdraw money without penalty from a traditional IRA at age 59½, and you are required to start taking annual required minimum distributions (RMDs) from age 73.
With this in mind, those who are looking seriously at retirement savings sometimes ask, “Is possible to hold more than one IRA?”
The answer is yes—you can hold as many IRA accounts as you like because the IRS places no limits on the number of IRA accounts of any type that you can hold. Your credit union, bank, or investment broker will be more than happy to open additional accounts in your name. However, there are a couple of reasons why more IRAs do not always mean more IRA benefits.
CONTRIBUTION LIMITS
While the IRS does not limit the number of IRAs you can open, it does limit how much you can contribute to tax-advantaged IRA accounts every year. For 2023, total contributions to your individual IRAs of any kind cannot exceed $6,500 (or $7,500 if you are 50 or older).
Therefore, If you hold more than one IRA account, you will need to split your contributions between them. Additionally, this money also needs to come from your earned income—not from investment dividends, divestitures, or loans.
INCOME LIMITS
Traditional IRAs allow you to make your contributions tax free. Your money is then taxed when you withdraw it, either voluntarily after age 59½ or as a RMD. This works well for people who expect to be taxed at a steady or declining rate throughout their careers.
Roth IRAs allow you to contribute money from your income AFTER it is taxed. While the withdrawal rules are the same as for traditional IRAs, you get your money back tax-free. This is a big advantage for people who pay progressively more tax over their career until retirement.
However, if you earn more than $138,000 a year (filing singly) or $218,000 (filing jointly) in 2023, your permitted contributions to a Roth IRA are capped. And those earning over $153,000 a year (or 228,000 filing jointly) cannot contribute at all.
These income limits remain in force no matter how many Roth or other IRA accounts you hold.
ADVANTAGES OF MULTIPLE IRAS
Despite these restrictions, there are reasons why you might choose to hold more than one IRA, especially as your retirement savings begin to accumulate over time. These include:
1. INCOME DIVERSIFICATION
Not all traditional or Roth IRAs are invested in the same way. Brokerages offer IRAs where funds are invested in bonds, property trusts, mutual funds, or directly into stocks with the view to delivering sustained long-term growth, but with returns that fluctuate along with the market.
Bank and credit unions also offer IRA savings accounts or certificates that pay guaranteed interest at a steady or fixed (in the case of certificates) rate.
Market-invested IRAs offer good returns when the economy is doing well, but can stagnate or even decline if the stock market falls. IRA savings accounts and certificates continue to offer steady returns in all economic conditions and perform well when interest rates are high.
By diversifying your retirement savings into two or more IRAs with different investment focuses, you can potentially increase your earnings while protecting your savings by limiting the effects of market declines or high inflation.
2. TAX DIVERSIFICATION
Different types of IRAs are also taxed differently. Most importantly, income paid into a traditional IRA is taxed (along with earnings) when it is withdrawn as a distribution, while contributions to a Roth IRA must already have been taxed and can be withdrawn tax free.
Depending on how your income level and earning sources change over your working life, it may be worth diverting money into a different type of IRA from the one you started out with.
3. SECURITY
Money invested in an IRA savings or certificate account is protected by the federal government in the same way that deposits in regular checking and savings accounts are. That means that IRA savings and certificate accounts are each insured up to $250,000 per account against the possibility of the failure of your bank or credit union.
Keeping at least some of your retirement nest egg in accounts that are insured by the FDIC (for banks) or NCUA (for credit unions) ensures your savings are safe even in the event of a major economic collapse.
At the same time, if you have more than $250,000 in retirement savings in any single bank or credit card account, it makes sense to split the money between two or more accounts to ensure the full amount remains insured.
4. INHERITANCE AND ESTATE PLANNING
Some people choose to spread retirement savings across two or more accounts to make it easier to allocate unspent funds to beneficiaries. In a case like this, you might want to spread retirement savings across funds allocated to each of your children or grandchildren so it is clear from the outset where the money is going.
Dividing your money this way also makes sense if you think you are likely to use retirement savings to help a child or grandchild pay for college or to purchase a home. Funds can be taken out of your IRA before you reach age 59½ without the usual 10% early withdrawal penalty if they are used to support a home purchase, college costs, or certain other qualifying expenses.
5. WITHDRAWAL FLEXIBILITY
Having more than one IRA can also give you more options for accessing your money when the time comes. For example, you might choose to tap tax-deferred regular IRAs first while you can afford to pay the taxes on your withdrawals, and keep your after-tax Roth accounts for later.
Similarly, if you decide to tap your retirement funds early to help pay for college tuition or a home purchase, you can avoid a hefty tax bill by choosing to access a Roth IRA account rather than a traditional one.
DISADVANTAGES OF MULTIPLE IRAS
While there are clear benefits in many cases of splitting your retirement contributions across two or more accounts, there are some potential drawbacks. These include:
1. COMPLEX TO MANAGE
Opening multiple IRAs, tracking your contributions and withdrawals, and making sure all your accounts are providing optimum returns take time and effort. Paperwork increases significantly with every retirement account you open. Be sure the benefits of operating more than one IRA outweigh the time and effort you will spend managing them.
2. HIGHER UPFRONT COSTS
Many IRA funds and certificates have significant minimum opening balances of anywhere from a few hundred to several thousand dollars, so finding the lump sum investments you need to open these accounts can be difficult.
3. MORE FEES
You will also pay more in annual maintenance fees and other charges on each of your accounts. This can add up over time, especially for certain types of mutual funds, but even a regular IRA savings account may have an annual fee. You might also end up paying more in withdrawal fees, especially if you decide to access money early from one or more accounts.
4. COMPLEX TAXES
You should be sure how tax efficient the mix of IRA products you choose is, now and in the future. The tax gains you enjoy on withdrawals from a Roth IRA could easily be outweighed by having to pay more tax than you expected on withdrawals from your original traditional IRA.
WASATCH PEAKS: THE RIGHT RETIREMENT MIX
Retirement planning can be complex, especially as your needs change and your savings begin to grow. It pays to have a long-term partner who understands your financial situations and shares your retirement goals.
At Wasatch Peaks Credit Union, we’ve been helping north Utahns plan for successful retirement for decades. Whether you are looking for a reliable place to start building your nest egg or a way to diversify your portfolio, our guaranteed-return IRA Certificate adds security, flexibility, and certainty to our members’ retirement savings plans:
- Earn guaranteed returns at a higher rate than a regular savings account
- Know exactly how much you will be earning in dividends and when
- Choose from both traditional and Roth IRA options
- Invest and reinvest in certificate terms from 3-60 months
- Deposits fully insured by the NCUA
Contact us today to learn more about our IRA Certificate options, or click below to learn more about how Wasatch Peaks can help you plan a retirement that benefits both you and your family.
