Can You Have Multiple Roth IRAs?

Many Americans wonder whether they can have more than one Roth IRA, and the answer is nuanced. While you can certainly have multiple Roth IRA accounts across different financial institutions, the annual contribution limits apply to all of them collectively. This article will explore the specifics of having multiple Roth IRAs and the benefits that can come with them.

Understanding Roth IRA Contribution Limits

The Internal Revenue Service (IRS) sets an annual contribution limit for Roth IRAs. For tax year 2023, the limit is $6,500. This limit is the same for all your Roth IRAs, regardless of how many you have. It’s important to note that the total contribution across all your Roth IRAs cannot exceed this limit in a single year.

For example, if you have three Roth IRAs, you can contribute up to $6,500 in total across all three. You could choose to contribute $2,000 to each IRA, or $5,000 to one and $1,500 to the other two. However, you cannot contribute $6,500 to one IRA and $0 to the others.

Why Consider Multiple Roth IRAs?

Having multiple Roth IRAs can offer several advantages. First, you can diversify your investments by spreading them across different companies and funds. This allows you to take advantage of the best offerings from various financial institutions.

For instance, you might want to split your investment between the Vanguard Total Stock Market Index Fund and the Fidelity Contra Fund. Opening a Roth IRA at Vanguard for the Vanguard fund and another one at Fidelity for the Fidelity fund can be more cost-effective. Additionally, managing funds at both places can provide a broader view of the services and benefits each company offers.

Consider the following examples:

Roth IRA at Vanguard: You can access lower expense ratios with Vanguard's 'Admiral' shares of mutual funds, which offer more cost-effective investment options. Roth IRA at Fidelity: Physical offices at Fidelity can make certain transactions more convenient to handle in person, while online trading platforms can be more user-friendly for other investments.

By having funds at both places, you can experience the distinct advantages of each company and make informed decisions based on your financial goals and preferences.

Conclusion

While you are not restricted to a single Roth IRA, you must be mindful of the annual contribution limit. This limit applies cumulatively across all your Roth IRAs, ensuring that you do not exceed the set threshold. Utilizing multiple Roth IRAs can provide benefits in terms of diversification and access to different financial services. However, it's crucial to stay within the contribution limits to avoid any potential issues with the IRS.