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The Good, the Bad, and the Rules of having Multiple Roth IRA’s

The Good, the Bad, and the Rules of having Multiple Roth IRA’s
30 Dec

Can you have multiple Roth IRA’s? Unsurprisingly, when it comes to Roth IRA, this is one of the most googled questions.

And it is a legit question. We all want to save for various reasons, and getting ways to increase our savings is what we live for. Maybe we need an assured kitty for our kids’ college education. Or some funds for us to hit the road and see as many places as possible once retirement hits. Whatever your reasons might be, saving for this or that is always advocated for.

If you have the means to save in different accounts good for you. It is the little contributions that we save every now and then that grow into something big.

That said, the answer to your question is yes! I am assuming that if you are reading this you are interested in taking multiple Roth IRA’s.

You can have as many Roth IRA’s as you wish. As long as you adhere to the rules, which we will talk about in a few, then save in whatever number of Roth IRA’s you wish

Difference between Traditional IRA and Roth IRA

Not to be confused, but there is a difference between a traditional IRA and a Roth IRA. They are both saving plans but have a number of differences.

Roth IRA is a retirement savings plan used to save post-taxed income. Simply put, your Roth IRA contributions are not tax-deductible. When you go on retirement, you can withdraw these your contributions plus any earnings without paying for income tax.

A traditional IRA, on the other hand, requires you to pay for income tax when retirement finally knocks on your door and you have to withdraw the funds. In other words, contributions to a traditional IRA account are tax-deductible.

Getting multiple Roth IRA’s

We have said it is okay, even by the laws, to have multiple Roth IRA’s. however, there are a few rules to this strategy as well as pros and cons.

The rules  

For starters, you need to earn income for you to contribute to a Roth IRA. It could be wages, salaries, bonuses, a self-employment income or commission. However, there are income limits for one to contribute to a Roth IRA. Depending on your status and your modified AGI, the amount to contribute will vary. Click here for more information on the 2019 income limits for Roth IRA.  

Secondly, no matter how many Roth IRA accounts you decide to open, your maximum contribution in all these accounts MUST NOT EXCEED the limit.

The 2015 to 2018 limit is $5,500 for those aged 50 years and less. Anyone over 50 years can contribute up to $6,500.

Come 2019, however, the maximum contribution limit was revised to a higher amount. Anyone below 50 years can contribute up to $6,000 while those aged 50 years and above can contribute up to $7,000.

All these limits, however, do not apply to any qualified reservist repayments and rollover contributions.

So, if you are planning on having multiple Roth IRA accounts, your contributions in all those accounts should not exceed that year’s defined limit. Say, for example, you want 3 Roth IRA accounts in 2019.

One to save for retirement, another one to save for your child’s college education, and the other to cater for your travel when you get to retirement.

The maximum contribution you can do in all these accounts in 2019. Split the money to contribute to each account equally or depending on the amount you project to have when it is time to withdraw.

To make your planning easier, you get a financial advisor who will help you plan for each savings plan accordingly. Personal Capital might be just the right people to talk to.  

You are also not allowed to withdraw earnings from your Roth IRA accounts before your retirement or the period you stipulated. In case you do, this will be treated as an early withdraw, which attracts a 10% penalty plus income taxation. You can, however, withdraw your contributions without being penalized.

Why you should have multiple Roth IRA accounts

Multiple Roth IRA accounts will help you keep track of your different investments and saving plans. This way, you are always aware of how each investment is performing. Having all your savings in one basket can make it hard for you to keep track, especially when you withdraw any contributions before the due date. Multiple Roth IRA accounts make it simple for you to know which account is affected by your early withdrawal.

For portfolio diversification, having multiple Roth IRA accounts is highly recommended. Maybe you want to save for your retirement and for your child’s college fund but you do not want to put the funds under one account let alone one Roth IRA provider.

You can open one account with one provider and the other with a different provider. This diversifies your portfolio and reduces your risks. That way, if one performs poorly, it will not affect the other.

In case you are looking for an IRA that suits your needs, Acorns can help you, and update it on a regular basis to help you attain your goals.  

Cons of multiple Roth IRA accounts

One of the biggest issues with opening multiple Roth IRA accounts is the set-up cost you have to part with for every account you open. It might not be a lot of money but still, an extra cost that you could have saved.

Additionally, keeping track and management of multiple accounts might be a daunting task. If you are not one to keep track of all your accounts because numbers, then you might be forced to hire a financial advisor. This, of course, might cost you some extra bucks for consultancy.  

In conclusion, the answer to your “can I have multiple Roth IRA’s?’’ is yes. You can have as many Roth IRA accounts as you want. You just need to be aware of the rules to opening multiple accounts such as not exceeding the maximum contribution limit.

As much as multiple Roth IRA accounts help you to diversify your portfolio and reduce your risks, it will also cost you some extra dollars to set-up additional accounts. A financial advisor can help you plan accordingly. You can also assess your own financial situation and goals to help you decide whether having multiple Roth IRA’s is worth it.


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