The Advantages of Multiple IRA Accounts
While some might not find it advantageous to hold only individual retirement accounts in a portfolio, no law prevents you from building a financial empire on them. That stated, annual contribution limits could constrain investment capacity. Consider financial expert Don Taylor’s answer to a Bankrate reader asking about multiple accounts in IRALand: He believes it's not how many accounts you own but the total amount of contributions you make to them each year that counts.
With so many IRAs on the market, it takes time to explore them all to diversify your holdings, just as you would broaden your portfolio by acquiring bonds, mutual funds or stocks. Diversification is an advantage because not every asset performs uniformly over time. Your diversified IRA portfolio can include any products available to you: traditional; Roth; Savings Incentive Match Plan for Employees, or SIMPLE; Simplified Employee Pension, or SEP; spousal; inherited; annuity; educational; and group rollover. You can even throw in some unconventional products for good measure.
Max out annual contribution limits for myriad IRA accounts and receive some obvious and subtle advantages. Since the Internal Revenue Service looks upon all IRA types but Roth and SIMPLE as "traditional," you can shelter earnings and enjoy tax deferment until you withdraw funds at retirement or the mandatory age of 70 1/2. Once you max out your contribution limits, you can move on to other investments knowing your IRAs are secure enough to offset any extremely risky bets you make when investing.
Safety in Numbers
Referring to an IRA as an “investment” vehicle may not be the right way to look at this financial product, formally dubbed individual retirement arrangements by the IRS. Instead view them as savings or assets made up of safe, tax-exempt contributions tucked away to maintain the lifestyle you build during your career. You can speculate by acquiring riskier types of traditional IRAs, but if your employer manages your IRA, it’s likely to be based on conservative decision making and investing.
Advantages of a Roth
Owning multiple Roth IRAs offers deferred advantages. Roth IRAs don't offer immediate rewards in the form of tax shelters, but prepaying taxes on them means your funds are free and clear when you retire. Further, while the IRS requires that you start drawing down traditional IRAs at age 70 1/2, you can keep your money in your Roth as long as you like.
You’re in Control
If you love controlling your financial destiny, you may see that as the biggest advantage of all. Explore specific IRA types like stocks, bonds, mutual funds, money markets and bank CDs using your instincts as your guide. Add a little risk by considering real estate, gold and business startup IRAs. Abide by maximum contribution rules and oversee self-directed IRAs that offer the autonomy you crave, but don't forget that multiple IRAs require multiple checks and balances. The biggest advantage of all might be a financial adviser nimble enough to guide your contributions while helping you avoid taxes.
Based in Chicago, Gail Cohen has been a professional writer for more than 30 years. She has authored and co-authored 14 books and penned hundreds of articles in consumer and trade publications, including the Illinois-based "Daily Herald" newspaper. Her newest book, "The Christmas Quilt," was published in December 2011.