Can I Have Multiple Traditional IRA Accounts?

An individual can indeed have multiple Traditional IRA accounts. A Traditional Individual Retirement Arrangement (IRA) functions as a personal savings plan designed to provide tax advantages for retirement. Contributions are often made with pre-tax dollars, allowing the money to grow on a tax-deferred basis until retirement. Taxes are typically paid only when funds are withdrawn, offering a deferred tax benefit.

Factors Influencing the Choice to Open Multiple Traditional IRA Accounts

Individuals may choose to establish multiple Traditional IRA accounts for practical or strategic reasons.
One common consideration involves investment diversification. Different financial custodians might offer distinct investment options, asset classes, or proprietary funds. Maintaining accounts with various providers allows access to a wider range of investment strategies, potentially enhancing portfolio diversification.

Another reason is when an individual engages with multiple financial advisors. Each advisor might manage a separate IRA, aligning with their specific investment philosophies or areas of expertise. This facilitates a diversified advisory approach, allowing different segments of a retirement portfolio to be managed by specialists.

Legacy planning and beneficiary designations also present a reason for holding multiple accounts. An individual can designate different beneficiaries for each IRA, providing flexibility in distributing assets to heirs according to specific wishes or estate planning strategies.

Furthermore, separating funds for different goals or sources is a practical approach. For instance, an individual might keep rollover funds from a previous employer’s retirement plan in one IRA, while maintaining current contributions in another. This separation helps track the origin and purpose of funds, simplifying financial organization.

Contribution Limits Across Multiple Traditional IRA Accounts

Contribution limits apply to multiple Traditional IRA accounts. The Internal Revenue Service (IRS) imposes an annual contribution limit that applies to the aggregate total across all Traditional IRA accounts an individual owns, not to each account separately. For 2025, the maximum amount an individual can contribute to a Traditional IRA, or a combination of Traditional and Roth IRAs, is $7,000.

Individuals aged 50 and over are permitted to make an additional “catch-up” contribution. This allows an extra $1,000 contribution, bringing their total annual limit to $8,000 for 2025. There is no age limit for Traditional IRA contributions, provided they have earned income.

The deductibility of Traditional IRA contributions depends on several factors. These include whether the individual, or their spouse, is covered by a workplace retirement plan and their Modified Adjusted Gross Income (MAGI). If an individual is covered by such a plan, their ability to deduct contributions may be phased out or eliminated based on their income. This deductibility rule applies to the total amount contributed across all Traditional IRAs.

Managing Distributions from Multiple Traditional IRA Accounts

Managing distributions from multiple Traditional IRA accounts involves specific tax considerations. When an individual reaches age 73, they generally must begin taking Required Minimum Distributions (RMDs) from their Traditional IRAs. The RMD amount is calculated based on the total fair market value of all Traditional IRAs held by the individual at the end of the previous year. The total RMD can be satisfied by withdrawing funds from any one, or a combination, of these accounts.

Distributions from Traditional IRAs are typically taxed as ordinary income in the year they are received. This applies to both the deductible contributions and any earnings that have accumulated tax-deferred within the account. Non-deductible contributions are not taxed upon withdrawal, as taxes were already paid on those funds.

Withdrawals taken before age 59½ are generally subject to a 10% additional tax, known as an early withdrawal penalty, in addition to being taxed as ordinary income. There are several exceptions to this penalty, which include withdrawals for:
Qualified higher education expenses
Certain unreimbursed medical expenses exceeding a percentage of adjusted gross income
A first-time home purchase up to $10,000
Distributions due to disability

The “pro-rata rule” applies if an individual has made both deductible and non-deductible contributions across their Traditional IRAs. This rule mandates that any distribution, including a conversion to a Roth IRA, is considered proportionally from both pre-tax (deductible) and after-tax (non-deductible) amounts across all Traditional IRAs. This prevents individuals from withdrawing only non-deductible contributions tax-free.

Administrative Considerations for Multiple Traditional IRA Accounts

Managing several Traditional IRA accounts requires diligent administrative oversight for accurate tax reporting and efficient financial organization. Maintaining precise records for each account is important, including details of all contributions, particularly distinguishing between deductible and non-deductible amounts, as well as tracking any distributions. This record-keeping facilitates correct tax calculations and helps avoid potential discrepancies with the IRS.

For tax reporting, financial institutions that hold IRA accounts will issue specific forms annually. You will receive Form 5498, “IRA Contribution Information,” from each custodian, detailing contributions made to that specific IRA during the tax year. Similarly, Form 1099-R, “Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.,” will be provided by each institution from which distributions were taken. It is the individual’s responsibility to aggregate the information from all these forms when preparing their annual tax return.

Individuals can consolidate multiple Traditional IRAs into a single account. This can be achieved through a direct rollover or a trustee-to-trustee transfer, where funds are moved directly between financial institutions. Consolidation can simplify management by reducing paperwork, streamlining record-keeping, and potentially lowering overall account fees, as some custodians may charge maintenance fees per account. Regular review of account statements from each custodian is advisable to monitor investment performance and compare fees charged across accounts.