Can I Have Two IRAs? Rules for Multiple Accounts

You can have multiple Individual Retirement Arrangements (IRAs), which are personal savings plans offering tax advantages for retirement. While holding more than one IRA is common, it introduces complexities regarding contribution limits and ongoing management. Understanding the specific regulations governing each type of IRA and how they interact is important for effective retirement planning. This article explains different IRA types, how contribution limits apply across multiple accounts, common scenarios for holding several IRAs, and guidance on their management.

Understanding Different IRA Types

Individual Retirement Arrangements come in various forms, each with distinct characteristics and tax treatments. A Traditional IRA typically allows for pre-tax contributions, which may be tax-deductible, leading to tax-deferred growth until withdrawals in retirement. Distributions are generally taxed as ordinary income in retirement.

A Roth IRA is funded with after-tax contributions, meaning there is no immediate tax deduction. Qualified withdrawals from a Roth IRA, including contributions and earnings, are entirely tax-free if conditions are met, such as being age 59½ or older and holding the account for at least five years. This tax treatment makes Roth IRAs appealing for individuals who anticipate being in a higher tax bracket during retirement.

Employer-sponsored IRAs also exist, such as the Simplified Employee Pension (SEP) IRA and the Savings Incentive Match Plan for Employees (SIMPLE) IRA. A SEP IRA is established by employers, including self-employed individuals, who contribute to Traditional IRAs set up for their employees. These contributions are typically tax-deductible for the employer, and the funds grow tax-deferred within the employee’s SEP IRA.

A SIMPLE IRA is for small businesses with 100 or fewer employees, involving employee salary deferrals and mandatory employer contributions. Contributions are pre-tax, reducing current taxable income, and the account grows tax-deferred. These employer-sponsored IRAs have different rules than Traditional and Roth IRAs.

Contribution Limits Across Multiple Accounts

Annual contribution limits for IRAs apply across an individual’s combined Traditional and Roth IRA accounts, not per account. For 2025, the maximum combined contribution is $7,000, or $8,000 if age 50 or older (including a $1,000 catch-up contribution). This means total contributions to these accounts cannot exceed this limit. For example, if an individual under age 50 contributes $4,000 to a Traditional IRA, they can only contribute an additional $3,000 to a Roth IRA for that year.

Income limitations apply to direct Roth IRA contributions. For 2025, single filers with a modified adjusted gross income (MAGI) of $150,000 or more, and those married filing jointly with a MAGI of $236,000 or more, may have their ability to make direct Roth IRA contributions reduced or eliminated. The overall combined Traditional and Roth IRA contribution limit still applies.

Contributions to SEP IRAs and SIMPLE IRAs operate under separate limits and do not reduce the amount an individual can contribute to their Traditional or Roth IRAs. For SEP IRAs, employer contributions for 2025 can be up to the lesser of 25% of an employee’s compensation or $70,000. SIMPLE IRA employee contributions for 2025 are capped at $16,500, with an additional $3,500 catch-up contribution for those age 50 and older.

Scenarios for Multiple IRAs

Holding multiple IRAs can be a deliberate strategy for retirement planning. One common reason is tax diversification, where individuals hold both Traditional and Roth IRAs. This allows for a blend of tax-deferred growth (Traditional IRA) and tax-free withdrawals (Roth IRA), providing flexibility to manage future tax liabilities. For example, a taxpayer might contribute to a Traditional IRA for an upfront tax deduction and also contribute to a Roth IRA for tax-free income later.

Another scenario involves rollovers from employer-sponsored retirement plans, such as old 401(k)s. When changing jobs, individuals often roll over previous employer plan assets into a Traditional IRA. This allows funds to continue growing tax-deferred while consolidating assets. Individuals can then maintain separate Traditional or Roth IRAs for ongoing annual contributions, keeping rollover funds distinct.

The “backdoor Roth IRA” strategy is another reason individuals might hold both Traditional and Roth IRAs. This strategy is used by high-income earners whose income exceeds direct Roth IRA contribution limits. It involves making a non-deductible contribution to a Traditional IRA and then converting those funds to a Roth IRA. This two-step process allows individuals to indirectly contribute to a Roth IRA and benefit from its tax-free growth and withdrawals.

Inherited IRAs also contribute to individuals holding multiple accounts. When someone inherits an IRA, they must establish a separate inherited IRA, distinct from any personal Traditional or Roth IRAs they may already own. Rules for inherited IRAs, particularly regarding distributions, differ significantly from personal IRAs, making it necessary to keep them separate.

Managing Multiple IRA Accounts

Managing multiple IRA accounts involves understanding specific tax and administrative considerations. Required Minimum Distributions (RMDs) apply to Traditional, SEP, and SIMPLE IRAs once the account owner reaches age 73. While RMDs are calculated separately for each, the total RMD amount can be withdrawn from any one or a combination of these accounts. Roth IRAs do not have RMDs for the original owner, offering greater flexibility.

Tax reporting is another element. Financial institutions report contributions to the IRS using Form 5498, “IRA Contributions Information.” This form details contributions to Traditional, Roth, SEP, and SIMPLE IRAs, as well as rollovers and conversions. Account owners also receive Form 1099-R for distributions, which reports the gross distribution and taxable amount. These forms are for accurate tax filing.

Ensuring consistent beneficiary designations across all IRA accounts is prudent. This ensures assets are distributed according to the account owner’s wishes upon their passing, potentially avoiding probate and simplifying transfer for beneficiaries. Each account custodian typically requires a separate beneficiary designation form.

Individuals may consider consolidating multiple IRA accounts for simplicity, potentially reducing administrative burdens and fees, or to streamline investment management. However, reasons exist to keep accounts separate, such as maintaining tax-diversification strategies or managing funds with different tax treatments. Decisions regarding consolidation should be made after careful consideration of individual financial goals and tax implications.