Can I Open More Than One IRA Account?

Individuals can generally open and manage more than one Individual Retirement Account (IRA). While holding multiple accounts is permissible, specific Internal Revenue Service (IRS) regulations and financial considerations apply to contributions, distributions, and transfers. Understanding these rules is important for effectively managing retirement savings across different accounts.

Understanding Individual Retirement Account Types

Two primary types of IRAs are available for personal savings: Traditional IRAs and Roth IRAs. Traditional IRAs allow for tax-deductible contributions, which can reduce your taxable income in the year you contribute. Funds within a Traditional IRA grow tax-deferred, with taxes paid upon withdrawal in retirement. While there are no income limitations to contribute to a Traditional IRA, the deductibility of contributions can be affected by your income and participation in a workplace retirement plan.

Roth IRAs operate differently, funded with after-tax contributions that are not tax-deductible. Qualified withdrawals in retirement from Roth IRAs are entirely tax-free. Roth IRA contributions are subject to income limitations; for example, in 2025, single filers with a Modified Adjusted Gross Income (MAGI) below $150,000 and married couples filing jointly below $236,000 can make full contributions, with phase-out ranges above these amounts. Other IRA types exist, such as Simplified Employee Pension (SEP) IRAs and Savings Incentive Match Plan for Employees (SIMPLE) IRAs. These are typically employer-sponsored plans for self-employed individuals or small businesses, which an individual might hold in addition to their personal Traditional or Roth accounts.

Reasons for Holding Multiple Accounts

Individuals hold multiple IRAs for practical and strategic reasons. One common reason is to diversify custodians, spreading investments across different financial institutions. This approach can provide access to varied investment options, different levels of customer service, or a preference for security by not concentrating all assets with a single provider.

Another strategic benefit involves implementing different investment approaches within separate accounts. An individual might use one IRA for long-term growth investments like equities, while another is dedicated to more conservative bond investments or specific sector plays. Segregating funds also allows for distinct financial goals, such as using a Roth IRA for tax-free retirement income and a Traditional IRA for pre-tax contributions to achieve current tax deductions. Individuals may also acquire inherited IRAs, which are separate accounts held under specific rules that differ from personally funded IRAs.

How Contribution Limits Apply

When an individual holds multiple Traditional and/or Roth IRA accounts, the annual contribution limit applies as an aggregate across all these accounts. For instance, in 2025, the total amount an individual can contribute to all their Traditional and Roth IRAs combined is $7,000, or $8,000 if they are age 50 or older, due to catch-up contributions. The limit is for your total contributions across all personal IRAs, not for each account.

Contributions to employer-sponsored SEP IRAs or SIMPLE IRAs do not count towards an individual’s personal Traditional or Roth IRA contribution limit. Individuals can still contribute to a Traditional or Roth IRA even if they participate in an employer-sponsored plan like a 401(k), though the deductibility of Traditional IRA contributions might be limited based on income. All IRA contributions must be made from taxable earned income for the year. Exceeding the aggregate contribution limits can result in penalties, specifically a 6% excise tax on the excess amount for each year it remains in the account.

Withdrawing Funds from Multiple Accounts

The rules governing distributions from multiple IRAs involve specific aggregation principles. For Traditional IRAs, the “pro-rata” rule applies when an individual has both deductible (pre-tax) and non-deductible (after-tax) contributions across all their Traditional IRAs. This rule mandates that any withdrawal or conversion is treated as a proportionate mix of taxable and non-taxable funds, based on the ratio of after-tax contributions to the total balance of all Traditional IRAs. This aggregation includes all Traditional IRAs, such as SEP and SIMPLE IRAs, preventing individuals from selectively withdrawing only their non-taxable basis. Individuals must report non-deductible Traditional IRA contributions and conversions on IRS Form 8606 to track the tax basis for these calculations.

For Roth IRAs, distributions follow a specific ordering rule, regardless of how many Roth accounts an individual holds, as all Roth IRAs are effectively aggregated for this purpose. Withdrawals are first considered to come from regular contributions, which are always tax and penalty-free. After contributions are fully distributed, withdrawals are then considered to come from conversion contributions, which are also tax-free but may be subject to a 10% penalty if withdrawn within five years of conversion. Lastly, distributions are deemed to come from earnings, which are taxable and may incur a 10% penalty unless the distribution is qualified. A qualified distribution occurs after age 59½ and a five-year holding period, or due to disability or a first-time home purchase, making both contributions and earnings tax and penalty-free. Traditional IRAs are subject to Required Minimum Distributions (RMDs) starting at age 73, while Roth IRAs are not during the original owner’s lifetime.

Combining and Transferring Accounts

Individuals seeking to consolidate or move funds between their IRA accounts have several options, each with specific procedural requirements. A direct rollover, also known as a trustee-to-trustee transfer, involves funds moving directly from one financial institution to another without the account holder taking possession of the money. This method is preferred because it bypasses tax withholding requirements and avoids the 60-day rollover rule or the one-rollover-per-year limitation. There is no restriction on the number of direct rollovers an individual can perform in a year.

Alternatively, an indirect rollover involves the account holder receiving the funds directly. The individual then has 60 calendar days from the date of receipt to deposit the funds into a new IRA to avoid potential taxes and penalties. This type of rollover is subject to the one-rollover-per-year rule, meaning an individual can only complete one indirect rollover from any of their IRAs within a 12-month period. Reasons for combining accounts include simplifying financial management, reducing fees by consolidating assets, or streamlining investment strategies across a single platform.