When it comes to IRA accounts, is more really merrier? Today’s article can help investors answer the question: should I have multiple IRA accounts?
In this article:
- Can I Have Multiple IRAs?
- How Many IRAs Can I Have?
- How Many Retirement Accounts Can I Have with Different Institutions?
- Is It Better to Have More Than One IRA?
- Should I Invest in Multiple IRA Accounts?
- Can I Combine Multiple IRA Accounts?
- How Do I Combine Multiple IRA Accounts?
Multiple IRA Accounts: “Should I Have Them?” and Other FAQs
Can I Have Multiple IRAs?
Yes, the IRS allows investors to have multiple IRA accounts.
How Many IRAs Can I Have?
Investors can maintain as many IRA accounts as they want because the IRS doesn’t limit the number of such accounts. However, the maximum annual contribution for their IRAs stays the same regardless of the number of accounts.
The 2019 maximum annual contribution for IRAs is $6,000 for investors younger than 50 and $7,000 for those older than 50.
For multiple accounts, the maximum annual contribution is spread out among all accounts. The total amount of contributions for all accounts should be $6,000 or $7,000, depending on the investor’s age.
How Many Retirement Accounts Can I Have with Different Institutions?
Investors can have multiple retirement accounts across different institutions, the limits of which may be different for each institution.
Is It Better to Have More Than One IRA?
There are several things to consider before answering this question. One of them is cost.
Most financial institutions charge fees for opening extra IRAs and most brokers require maintaining a minimum balance for each IRA. One must consider the total investible amount in relation to the minimum required IRA balance before deciding to have multiple IRAs.
Aside from the cost of setting up additional IRAs, one must evaluate the advantages and disadvantages of maintaining multiple IRA accounts.
Advantages of Having Multiple IRAs
Specific Investment Performance Data
Having multiple IRA accounts can be advantageous for investors who want specific investment performance data. Why?
Investors can dedicate each IRA for specific investment assets (e.g., one for all stock investments, another for bonds, etc.) By doing so, investors can obtain asset-specific investment performance data, which is impossible if all IRA investments are lumped under just one account.
This is important because some investments perform better than others under different market conditions. When investors can separately monitor an investment-class’ performance, it’s easier to recalibrate their portfolio’s composition accordingly.
Diversify Investments Across Alternative Assets
Another advantage of having multiple IRA accounts is the ability to diversify investments across alternative assets. These include precious metals, cryptocurrencies, business partnerships, and real estate.
Most regular brokerage firms prohibit alternative asset investments like these. Investors who want to diversify with such assets will need a self-directed IRA account to do so.
Monitor and Control Investment-Specific Expenses
Another advantage of having multiple IRA accounts is the ability to monitor and control investment-specific expenses.
For example, people who invest part of their IRAs in real estate will need to pay for expenses related to the property investment’s maintenance. By separating this investment in a specific IRA, monitoring related expenses and knowing which IRA will fund them can be much easier.
The last advantage of having multiple IRA accounts is tax-related. By having at least two IRAs, one Traditional and one Roth, investors can have the best of both tax-worlds.
- Traditional IRA accounts allow an investor to enjoy tax deductions from its contributions now. Contributions to Traditional IRAs are tax-deductible expenses.
- On the other hand, a Roth IRA allows investors to enjoy tax benefits later during retirement. Because Roth IRA contributions aren’t tax-deductible expenses, qualified withdrawals in the future are tax-free.
Disadvantages of Having Multiple IRAs
Minimum Balance Requirement
For IRA owners who are just starting out, the minimum balance requirement can be a hindrance. It’s because every IRA account has one, which means a newbie IRA owner’s initial contributions may not be enough to maintain more than one IRA.
Management Tasks for Each Account
Every IRA account requires responsible management, and each additional IRA account multiplies the amount of monitoring and maintenance work required to successfully manage them.
For a seasoned investor who has many years of investing experience, this may not be an issue. But for one who’s just a newbie, having to manage more than one IRA account may be too much for the moment.
Should I Invest in Multiple IRA Accounts?
Opening and managing multiple IRA accounts requires more work and responsibility. But under the right circumstances, the added responsibilities can be worth the benefits having multiple IRAs can provide.
So, is investing in multiple IRA accounts worth it?
The best way to make a well-informed decision is to consider one’s investment goals together with the advantages and disadvantages. Even better, one can consult with an investment broker, too.
Can I Combine Multiple IRA Accounts?
An investor can consolidate multiple IRAs into one, but only if they’re of the same kind. This means an investor can’t consolidate Traditional and Roth IRAs in the same account. This is because of how contributions that fund these IRAs are taxed.
- Tax-exempt dollars fund Traditional IRAs.
- After-tax dollars fund Roth IRAs.
How Do I Combine Multiple IRA Accounts?
The process for consolidating multiple IRA accounts may differ based on what types of IRA an investor has.
IRA Accounts of the Same Type: Trustee-to-Trustee Transfer
The most convenient way to combine multiple IRAs is via a trustee-to-trustee transfer. An investor can do this by simply instructing the custodians or trustees of their IRAs to transfer the investments to the IRA that will remain.
One benefit of consolidating IRAs this way is that transfers aren’t considered withdrawals or distributions. As such, the investor doesn’t pay any taxes, unless the transfers involve changing a Traditional IRA to a Roth IRA.
Multiple Accounts of Different Types: Consolidate Into Two Separate Accounts With the Same Custodian or Trustee
If the investor wishes to consolidate multiple Traditional and Roth IRAs, the best thing to do is consolidate under two accounts with the same custodian or trustee. One account consolidates all Traditional IRAs and the other account does the same for all Roth IRAs.
Multiple Accounts of Different Types: Rollover
The other way to combine multiple IRAs is via a rollover. This involves withdrawing property or funds from an IRA account to deposit it in another one.
Investors don’t have to pay taxes on rollovers provided it’s completed within 60 days from withdrawal or distribution. Otherwise, the IRS will consider it as taxable income except if it’s a qualified Roth IRA distribution.
If the Roth distribution used to rollover is an unqualified one, the investor may have to pay a 10% penalty tax for the rollover. An investor can only roll over once every year.
Should investors have multiple IRA accounts or should they stick to just one account? The answer to this question isn’t set in stone and requires weighing the pros and cons together with one’s investment objectives and preferences.
Based on your investment objectives, personal preference, and the advantages and disadvantages of having multiple IRA accounts, do you think you should have multiple IRAs or just stick to one? Share your thoughts with us in the comments section below.