IRAs can be instrumental in making the most of what you save for retirement, with vital tax breaks that give you an edge over regular investing accounts. You can open as many IRAs as you want, as there's no restriction on the number of different IRAs you own. In practice, there are many reasons for having multiple IRAs, including taking advantage of both Roth and traditional IRA rules and using both direct contributions and rollover transactions to boost your overall retirement savings. With limits on contributions, making the most of the IRAs you do use is essential to get the best result possible.
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Why having two IRAs can be smart
If you decide to have both a traditional IRA and a Roth IRA, you'll need to keep them in separate accounts, and that's a good reason to own two different IRAs. The traditional IRA will likely give you an upfront deduction on contributions, while the Roth IRA offers tax-free growth to most retirement savers.
Having these two IRAs in retirement can be a big boon. Withdrawals from the traditional IRA are typically included in taxable income, but Roth withdrawals usually aren't. That gives you the flexibility to take distributions and control your resulting tax liability in the optimal way possible.
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Dealing with rollover IRAs
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There used to be a big distinction between contributory IRAs that you made direct contributions to and rollover IRAs that accepted retirement money from other sources. In particular, many people used rollover IRAs to hold assets that had been saved in a 401(k) or other employer-sponsored plan.
In the past, keeping rollover IRA money separate from contributory IRAs was essential in order to preserve the ability to move the rollover money back into a 401(k) at a current or future employer. Prior law didn't allow commingling of rollover and non-rollover assets.
Now, however, the rules preventing those movements have gone away. That makes it far less important to have a separate rollover IRA from your regular contributory IRA. However, many people still find it valuable to do so for tracking purposes, and some state-specific creditor protection laws can sometimes give you added benefits if you keep money that initially came from an employer plan separate from your ordinary IRAs.
Using different financial providers
Another advantage of having multiple IRAs is that you can use a different financial provider for each account. For those who invest in stocks, exchange-traded funds, and other securities, that isn't generally quite as important, because the same investment assets are available to most financial institutions that have brokerage platforms. However, if you have particular mutual funds or other proprietary investments that you like, then splitting up your money between them into separate accounts is perfectly fine.
Estate planning and IRAs
Finally, when it comes to IRAs and estate planning, there are situations in which having multiple IRAs will be necessary or keep things simpler than they'd otherwise be. For instance, if you inherit an IRA from someone who isn't your spouse, you won't be allowed to pull those assets into your own IRA. Instead, you'll have the chance to keep the inherited IRA open, giving you a second account but preserving some valuable tax benefits.
Also, in handling your own estate planning, you might want to open multiple IRAs and list different beneficiaries for each. Doing so allows you to customize not only the amount of money each beneficiary gets but also the particular assets that they'll receive. They'll have the option to liquidate those assets after your death, but many family members will leave investments in place for a while until they can do their own financial planning.
There's nothing wrong with having just one IRA. However, there are several reasons why you should consider multiple IRAs. Depending on your situation, you might find that having more than one IRA is exactly the right way to go.
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