You may think that the only thing you need to know about the Roth IRA is that your contributions are limited to $ 6,000 if you are under 50 and $ 7,000 if you are 50 or older (at least for 2020). a little more complicated than that. Can you have two separate Roth IRA accounts?
Quick summary: Roth vs. Traditional IRA
First, however, a quick refresh of key differences between the Roth IRA and traditional IRA. Contributions to the Roth IRA are not tax deductible when you make them. However, distributions may be exempt. This untaxed status for withdrawals applies to both initial investments and the profits resulting therefrom, assuming that after withdrawing funds you have exceeded 59 years and that the account is at least five years old (see Rule No. 5 below). In contrast, contributions to traditional IRAs are tax deductible, but when the time comes to withdraw your funds, you’ll have to pay taxes at their current income tax rate. What’s more, you are to receive the required minimum payout (RMD) of traditional IRAs from the age of 72. Roth IRAs are not subject to RMD requirements until the death of the account holder (see Rule No. 10 below).
Can I have two IRAs?
If you’re wondering, “Can I have two IRAs?” or “can I open multiple Roth IRA accounts?” the answer is yes. It is possible to have two or more IRAs. If you’re wondering how many IRAs a person can have, the answer is you can have several. Situations where you can have more than one IRA include transferring savings from 401k to a traditional IRA, as well as owning a Roth IRA.
Similarly, you can have a SEP or SIMPLE IRA at work and a Roth IRA off work. If you have multiple IRA accounts, it’s important to understand the rules and how premium limits work.
The benefits of having multiple IRAs
Having multiple IRAs can help you customize your tax strategy and gain access to more investment options and increased account insurance. Here’s how:
- Tax diversification: Different types of IRAs provide different tax breaks. The traditional IRA provides an immediate tax deduction, allowing you to postpone what you owe to the IRS until you start to withdraw your savings from your retirement account.
- Diversification of investments: having an IRA in many financial companies can ensure exposure to different types of investments and even to different investment strategies.
- Payout flexibility: In addition to the differences in how you save your savings, traditional and Roth IRAs have different payout rules before and during retirement.
Greater coverage of cash and investment insurance: in the unlikely event that the brokerage office or bank that holds your IRA collapses, SIPC and FDIC insurance on investment and deposit accounts can cover your losses.
Simplified property planning: beneficiary naming is part of the process of opening an IRA. Although you can exchange more than one beneficiary for an IRA (primary and unforeseen), having different people listed in separate accounts can alleviate the tiffy beneficiaries after retirement.