IRAs offer many tax advantages. This is good news because the IRS does not limit how many IRAs a person can have. Unlimited IRAs mean that a person can have as many IRAs as they want to save up for the future.
For instance, an employee is given the freedom to open both a traditional IRA and a Roth IRA simultaneously or may also opt to have multiple IRAs of either of the two natures.
However, you will still be limited by your annual maximum contribution limits, so it is important not to max out each account.
To illustrate, if you have two IRA accounts, the maximum amount that can be contributed between them in 2023 is $6,500. You could contribute $3,000 to one account and another $3,500 to another, but no more than $6,500 together.
It is important to keep in mind that increasing your number of IRAs will not necessarily increase the amount you can contribute annually.
The Benefits of Having Multiple IRAs
While having multiple IRAs may have its limits, you can also derive several benefits from it. 
Tax Diversification
IRA options allow you to choose the type of retirement account that best suits your needs. A traditional IRA gives immediate breaks, which will enable you to delay what you owe the IRS until you begin withdrawing your savings from the account in retirement.
On the other hand, Roth IRAs have no upfront costs but offer qualified withdrawals completely free from taxes.
Freedom
Another benefit of handling multiple IRAs is the freedom it gives people.
Having more than one IRA account allows employees with multiple sources of income to qualify for higher contributions in each respective IRA account they have opened.
For example, someone who earns their living through two different jobs may want to handle both traditional IRAs and Roth IRAs according to their status instead of lumping the two incomes together.
Investment Diversification
Having multiple IRAs also diversifies your portfolio because you can opt to invest your annual IRA contribution in many different investments and not just one.
For example, you can choose to have your retirement savings managed by professionals, but you can also choose to engage part in individual stocks on your own.
The flexibility of handling multiple IRAs also applies when rebalancing your portfolio or changing your investment allocations.
This gives you more control over your investments and can help you achieve your retirement goals faster.
Implementation of Different Investment Strategies
When you have multiple IRAs, you can opt for different investment strategies for each IRA account. You have the option to either be passive or active in your approach. Such strategies may include the following:
- Entering into long-term investment plans
- Investing in dividend stocks or bonds
- Acquiring mutual funds or index funds
Spreading Out Different Beneficiaries per Account
Multiple IRAs will allow you to choose multiple beneficiaries for each type of IRA account. This is particularly beneficial if you no longer have your spouse with you and want to leave some of your IRA funds to your children instead.
Further, having different people named on separate accounts can help mitigate beneficiary disputes.
Penalty-Free Early Withdrawal
This is only applicable to Roth IRAs, given that they have been established for more than five years.
This is a real advantage, especially when you need to withdraw money before reaching the age of 59 1/2 years, which is not possible when you only have a traditional IRA, unless you are willing to suffer the charges for early withdrawal.
The Drawbacks of Multiple IRAs
While there are several benefits to handling multiple IRA accounts, it is important that you understand the disadvantages of having more than one account.
Added Exposure to Account and Investment Fees
While it is possible to have unlimited IRA accounts, the fees are likely to stack up. IRA account service fees are not cheap, so you can expect to lose some of your money along the way if you fail to monitor your expenses carefully.
Having multiple accounts, especially if they belong to different providers, can increase the fees you have to pay, which should not be overlooked.
Double the Paperwork
If you have a single IRA account, there is just one tax form to complete. However, if you have multiple accounts, you are looking at having to file different forms depending on each of your IRA accounts.
For example, the IRS will ask for slightly different information on Form 5498, specifically designed to provide information about an IRA account.
This is more time-consuming and may also be more complicated, especially if you are not used to handling tax papers.
More Complicated Retirement Planning and Portfolio Maintenance
Having multiple IRA accounts can complicate your retirement plans, especially if you invest in different things.
You also have to consider that the percentage of each investment going into each IRA account differs, making it challenging to develop a stable and streamlined portfolio until you gain enough experience.
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The Right Number of IRA Accounts
Most people would consider having two IRA accounts: a Roth and a traditional IRA. This is in addition to a workplace retirement plan, such as 401(k), if you have one.
The Roth IRA offers the most flexibility, as it allows you to withdraw from the account tax-free and continue contributing as long as you have earned income.
If you have money in your old workplace retirement plan, or if the tax incentives are enough to motivate more saving and investing later on down the line, then a traditional IRA might be the right choice.
You will likely get access to many investment options that are not available with other types of accounts while still maintaining some control over costs.
The Bottom Line
Multiple IRA accounts might be helpful for some people while it remains an unnecessary headache to others. It is really up to you to determine whether or not getting another account would truly benefit you in your retirement plan or just another way of spending money on top of the fees you already pay to keep your IRA running.
As long as you are aware of the advantages and disadvantages of having multiple IRA accounts, you can make an educated decision about whether this is indeed the right choice for you.
It is recommended that you seek guidance from a financial advisor before opening any new IRA account so you do not run into any problems later on when preparing for retirement.
FAQs
1. What is an IRA account?
IRA stands for Individual Retirement Arrangements, which are accounts wherein you can store money that will be withdrawn or spent later on in life.
2. What is the difference between a traditional IRA and Roth IRA?
A traditional IRA allows you to contribute annually to your account while earning your investment income tax-deferred. On the other hand, a Roth IRA invests in after-tax dollars and allows you to withdraw funds already taxed upon retirement without any penalty.
3. What are the benefits of combining different types of IRAs?
Combining different types of IRA accounts can help you diversify your investments more efficiently than if it were just one type of IRA account only, such as the traditional or Roth IRA. You will get more freedom when managing them, and it can make you save better for retirement.
4. Can I withdraw money from my IRA early without penalty?
You can if you are using a Roth IRA and it has been open for more than five years.
5. What are the risks of having multiple IRAs?
Combining different types of IRA accounts can lead to high maintenance fees and management costs which will only eat into your savings over time. Having many accounts with different managers may also cause confusion, especially when executing transactions among these accounts.
