Individual retirement accounts serve as a valuable tool to help people without pensions or 401(k) plans save for retirement. A traditional IRA can also be used to supplement a workplace retirement account in order to maximize retirement savings. While the Internal Revenue Service rules allow you to maintain as many separate IRA accounts as you wish, it may be useful to combine these accounts to streamline the account management and accounting process.
In order to open a traditional IRA, you must meet certain criteria set forth by the IRS. Either you or your spouse must have some form of taxable income or compensation in order to qualify for an IRA. This includes wages from a job or income from a business, but does not include things like rental income or pensions. The account holder must also be below the age of 70 1/2. As long as you meet both of these criteria, you are permitted to open one or more IRAs, with no upper limit on the number of accounts you can open.
Opening Multiple IRAs
There any many reasons why an individual may wish to open multiple IRA accounts. For some, this strategy allows one to clearly identify savings goals, perhaps opening one IRA to save for educational expenses and another for retirement. It may also be advantageous to open more than one IRA if you plan to leave money to multiple beneficiaries upon your death. While managing multiple accounts may prove more difficult than managing a single account, it can also prove more costly, as each IRA typically comes with its own separate custodial fee. Though some account holders open multiple IRA accounts in an effort to diversify, this is typically unnecessary. Using a variety of mutual funds, stocks, bonds and other financial instruments allows for effective diversification within a single IRA accounts.
IRA Contribution Limits
No matter how many IRA accounts you own, the IRS limits the amount of money you can contribute to these accounts each year. As of November 2012, account holders under the age of 50 can contribute up to $5,000 per year, while those over the age of 50 can contribute up to $6,000 per year. These contribution limits represent an aggregate for all accounts. For example, if you are 60 years old and have three IRA accounts, you may contribute a maximum of $6,000 to all of your IRA accounts. If you contribute $2,000 to two of the accounts, you may contribute no more than $2,000 to the third IRA. This aggregate limit applies to all IRA accounts you hold, regardless of the institution where the accounts are managed.
IRA and Roth IRA
Just as you can open more than one traditional IRA, you can also open multiple IRAs in conjunction with a Roth IRA. When you own both an IRA and a Roth IRA, the maximum contribution limit of $5,000/$6,000 annually applies to both accounts. For example, if you are under the age of 50 and contribute $4,000 to a traditional IRA, you may contribute a maximum of $1,000 to your Roth IRA each year. If you contribute $1,000 to your Roth and $2,000 to a traditional IRA, you can contribute no more than $2,000 to a second traditional IRA.
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