There’s no limit to how many Roth IRAs you can have, but opening multiple accounts won’t change the annual contribution limit. Depending on your situation, there may be some good reasons to open multiple Roths—and some potential challenges.
You Can Have as Many Roth IRAs as You Want
There’s no limit to the number of Roth IRAs you can open during your lifetime. Each IRA can have a different custodian (or financial institution) and beneficiary, and each account can hold different investments and pursue different strategies. While opening multiple Roth IRAs would allow you to diversify your portfolio and easily choose how your investments will be divided up after your death, there are some downsides to having multiple accounts.
Downsides To Opening Multiple Roth IRAs
The main downside to opening multiple Roth IRAs is that it can get confusing. “From the IRS’ perspective, you only have one Roth IRA, no matter how many different IRA custodians you have money with,” said Steve Burkett, a Certified Financial Planner with Palisade Investments, in an email to The Balance. “[It] doesn’t make much sense to have more than one Roth IRA custodian, and this could cause tracking/contribution errors.” If you don’t keep close track of which funds you contributed to which accounts at which times, you could be penalized for violating the Roth IRA 5-year rule, even if it’s an accident. The rule states that you can only make qualified distributions (which aren’t taxed or penalized) of investment earnings if the cost basis for the earnings has been in the account for at least five years. Additionally, if you choose to have multiple accounts to use different investment strategies, you might accidentally overweight one strategy by contributing to the wrong account.
When It Makes Sense To Have Multiple Roth IRAs
If you can stay organized and keep your contributions within the annual limit, there may be situations in which it may make sense to open multiple accounts. “If different custodians offer you different types of investment strategies, this could be a reason to use multiple custodians,” Burkett said. This point particularly applies to custodians that offer specialized services. For example, if you want one Roth IRA to be actively managed by an investment manager and another to only own Vanguard funds, you could open two separate accounts. Another reason to open multiple Roth IRAs is to differentiate the accounts you’ll leave to multiple beneficiaries. “Multiple Roth IRAs makes sense in cases where you want to separate the beneficiaries of those accounts,” explained Certified Financial Planner Brandon Opre to The Balance via email. If you want to leave your savings to multiple beneficiaries, opening a new account for each one is one way to make it easier to process. “Especially if you want to leave an IRA to a charity, [you could] designate one Roth IRA to go directly to a charity, [and] the others can go to family members or whomever,” said Opre. “It helps make processing smoother, and the custodian of the investments does not have to worry about splitting the investments into fractions.”
Other Common Roth IRA Mistakes
Mistakes made in Roth IRA contributions or investing can be very costly in both the long run (by reducing investment gains) and the short run (by incurring IRS penalties). Here are a few other common Roth IRA mistakes you should avoid.
Tax-Advantaged or Low-Yield Investment Choices
Funds invested in a Roth IRA grow without taxes. If you invest your Roth in municipal bonds that are tax-advantaged or in low-return assets, you won’t be getting the best bang for your buck. Let’s say you want to diversify by buying both a high-growth equity and a bond with a 3% yield, and you plan to buy one in your Roth IRA and the other in a different account. If you buy the bond in the Roth, you won’t have to pay taxes on the 3% yield. If you buy the equity in the Roth and it goes up 500%, you won’t have to pay taxes on that far larger gain.
Nonqualified Withdrawals
Distributions of investment earnings (not cost basis) from your account can only be made if you meet strict requirements. First, the cost basis must have been invested for five years. In addition, you must meet at least one of a number of criteria, including:
Be at least age 59 ½Qualify as diabledBe using up to $10,000 of the funds toward the purchase of your first home
Excess Contributions
The annual contribution limit for a Roth IRA is $6,000 ($7,000 if you’re age 50 or older), and this amount applies to your combined contributions if you open multiple accounts.
Not Contributing to Your Spouse’s IRA
If you’re married and file jointly, you and your spouse can contribute to each other’s Roth IRAs—even if only one of you earned taxable income. The total contribution amount for a married filing jointly couple is double that for a single person: $12,000, plus an additional $1,000 for each person age 50 or older. As long as your joint tax return shows that you had at least that amount in taxable compensation, either of you can contribute to Roth IRAs in both of your names. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
