How Many Roth IRAs Can I Have?

You face no limits to how many Roth IRAs you can have, although total annual contribution limits extend across all Roth IRAs. Choosing to have multiple Roth IRAs can make sense to increase potential insurance coverage, diversify investments, or designate a different IRA to each beneficiary. There are pros and cons to multiple Roth IRA accounts. Here we’ll cover why you might want to have multiple Roth IRAs and common mistakes to avoid to better answer “How many Roth IRAs can I have?” for your financial goals.

What is a Roth IRA?

A Roth IRA or individual retirement account is a tax-advantaged account. A Roth IRA allows you to pay taxes on contributions upfront, but then contributions grow tax-free. The major advantage is tax-free growth.

With a Roth IRA, unlike a traditional IRA, you can withdraw your contributions (the principal) anytime, penalty-free. But you cannot withdraw the earnings before age 59½ without penalties or meeting special exceptions.  

Unfortunately, there are upper-income limits for Roth IRAs. For 2023, you must earn less than $138,000 as an individual or $218,000 if you file taxes jointly as a married couple. A backdoor Roth IRA could be an option if your income surpasses those limits to still take advantage of these tax-advantaged accounts. Speak to a financial adviser to understand the implications of this option and whether it will work for you. 

Can you open multiple Roth IRAs? 

Yes, you can have as many Roth IRAs as you want. You can also have traditional IRAs or SEP IRAs. While most people don’t need 20 Roth IRAs, it may make sense to have two or three Roth IRAs, depending on your situation. However, regardless of how many IRAs you have, your total annual contributions to all IRAs cannot surpass IRS limits. 

Contribution limits for multiple IRAs

The contribution limit for IRAs in 2023 is $6,500. If you are 50 or older, you can make an extra $1,000 catch-up contribution.

 Remember that your contribution limit applies to all your IRA accounts across the board. No matter how many IRAs you have, you can contribute a total of $6,500 in 2023.

1. Traditional IRA

The IRS limits traditional IRA contributions to $6,500 in 2023. Even if you have more than one traditional IRA, you can only contribute the maximum amount the IRS allows.

2. Roth IRA

Like traditional IRAs, the IRS contribution limit for Roth IRAs is $6,500 in 2023. However, a Roth IRA has income limits. Your contribution may be limited or phased out if your income exceeds the IRS income limit.

The phase-out range starts at $138,000 for single filers. Once you earn $153,000, you cannot make a Roth IRA contribution. Contributions for married couples filing a joint return start to phase out at $218,000 in 2023. A married couple earning $228,000 or more cannot contribute to their Roth IRA.

Why would you want to have multiple Roth IRAs?

There are several reasons to have more than one Roth IRA, from investment diversification to multiple beneficiaries. Here’s a breakdown of why you might choose multiple Roth IRAs. 

1. Investment diversification

With several Roth IRAs, you can diversify different investments in each account. Of course, you can also do this with a single Roth IRA. But, with multiple Roth IRAs, it can be simpler to designate different accounts to different funds or investing goals. An investment adviser can help you make a diversified investment strategy according to your risk tolerance. 

Also, when you spread your assets over multiple Roth IRAs, you potentially gain better insurance coverage. In the unlikely event the brokerage holding the IRA fails, SIPC insurance on investment accounts can cover up to $500,000. To maximize coverage, you’ll need each Roth IRA at a different bank or brokerage, as two Roth IRAs at the same SIPC member brokerage firm the total $500,000 limit. 

2. Tax flexibility

With multiple Roth IRAs, you have the flexibility to take tax-free distributions from one account while leaving the other account untouched. Since Roth IRAs don’t have required minimum distributions (RMD), you can leave one or more Roth IRAs to grow tax-free to pass on to your heirs as part of your estate plan.

3. Have multiple beneficiaries

Creating multiple Roth IRAs allows you to easily distribute wealth to beneficiaries upon your passing. Rather than naming multiple beneficiaries on a single Roth IRA, you can set up a Roth IRA for each beneficiary to simplify distributions. 

4. Compare the performance of various providers

When you have multiple Roth IRAs, you can use different account providers and compare fees and performance over time. Of course, if you find one provider that is clearly better for higher returns or lower fees, you can move your other accounts to that provider.

5. Flexibility on withdrawal

IRAs have different withdrawal rules. Withdrawals from a traditional IRA are penalized if you haven’t reached age 59½, except in special circumstances. The IRS requires withdrawals after age 73. With a Roth IRA, you can withdraw your contributions tax- and penalty-free at any time. Plus, there are no mandatory age-based withdrawals with a Roth IRA.

What should you consider before having multiple IRAs?

While multiple IRAs might make sense long-term, they are not without some significant disadvantages. A few major disadvantages include: 

• Can be complicated and time-consuming: Having multiple IRAs requires frequent monitoring and coordination to ensure each account is funded properly and investments perform as expected. 
• Higher fees and expenses: Many IRA accounts come with fees. Even low fees across multiple accounts can add up.
• Potentially reduce overall returns on investment: When you split money across different accounts, you have less money building in each account. If you choose to invest in these accounts differently, poor performance in one account could mean lower returns. 
• Unequal investment allocation: Spreading investments across multiple IRAs makes monitoring performance and evaluating your investment mix harder.

Common mistakes that you should avoid with Roth IRAs

Roth IRAs are one of the most powerful tools to build retirement wealth with tax advantages. Here are a few common mistakes to avoid.

1. Making excess contributions

You can contribute a maximum of $6,500 per year to a Roth IRA as an individual or $7,500 if you’re 50 or older this year. While rates may rise slightly next year, you cannot contribute more than the maximum allowed. 

If you contribute more, the IRS will charge you a 6% penalty tax on the excess amount. It can charge this penalty for each year you don’t take action to correct the error, up to six years from the year the error occurred.

2. Forgetting to contribute to your spouse’s IRA

You and your spouse can each have your own Roth IRAs, doubling the amount you contribute. That means you can have double the savings and tax-free growth. The limit for a couple is either your total gross income or the contribution limit times two, whichever is less. Make sure to maximize IRA contributions for you and your spouse each year.

3. Breaking the rollover rules

You can only roll over an IRA once each 365-day period. Even if you have multiple Roth IRAs, you still only have one rollover. These limits don’t apply to direct IRA transfers, rollovers between IRAs and employer plans, or Roth conversions.

If you improperly roll over a distribution, you’ll have to pay a 10% early distribution withdrawal penalty, plus all applicable taxes for the year, unless you qualify for an exception. In addition, excess funds are subject to the 6% penalty (above).

4. Early withdrawal of earnings

While a Roth IRA allows you to withdraw contributions at any time, IRA withdrawal rules state that you cannot withdraw earnings before reaching age 59 1⁄2 without a 10% additional penalty. To avoid this, only withdraw contributions. You can withdraw earnings if you qualify for a withdrawal exception, such as a first-time home purchase, college expenses, and birth or adoption expenses.

Tips for managing multiple IRAs

You can better manage multiple IRAs with the following strategies:

1. Consolidate your accounts

Too many IRAs can be challenging to manage. Consider consolidating your IRAs to make oversight and tax reporting easier. Plus, you save money in fees when you have fewer accounts.

2. Keep track of contribution limits

You could easily contribute more than allowed with multiple IRA accounts. Keep track of every contribution you make for the year in one place to stay on top of what you’ve contributed for the year.  

3. Rebalance your portfolio

Your investment mix can change as the value of your investments grows or falls. Over time, you may find that the outperformers in the portfolio begin to take up a larger allocation of your portfolio. Rebalancing the portfolio helps to change your investment mix back to the original desired strategy.

4. Review and update your beneficiaries

The beneficiary of your IRA is entitled to funds after you die. Every IRA must have at least one beneficiary. Make sure you regularly review the beneficiaries listed on your IRA.

Stay informed about tax laws and rules

You could be stuck with taxes and penalties if you aren’t current on the latest IRA tax laws and regulations. Keep tabs on early withdrawal penalties and required minimum distributions.

Building Your Retirement Plan

A Roth IRA is a powerful tool for building long-term retirement wealth. Whether you choose two Roth IRAs for you and your spouse or multiple IRAs, these retirement accounts can give you the flexibility to increase retirement savings tax-free. However you choose to use them based on individual financial goals, Roth IRAs should be part of your retirement plan. 

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