Can You Have Multiple IRAs? Rules You Need to Know

Individuals can hold multiple Individual Retirement Accounts (IRAs), which are tax-advantaged savings vehicles. This flexibility supports diverse financial planning strategies. Understanding the specific rules governing contributions, distributions, and management across these accounts is important. This knowledge ensures compliance and optimizes benefits.

Permissibility and IRA Types

Individuals can establish and maintain multiple Individual Retirement Account (IRA) accounts, often with different financial institutions or custodians. This allows for diversification of investment strategies or consolidation of funds. Each type of IRA offers distinct tax advantages, catering to different financial situations and retirement goals.

A Traditional IRA allows pre-tax contributions, which may be tax-deductible depending on income and participation in other retirement plans. Earnings within a Traditional IRA grow tax-deferred until withdrawal in retirement. In contrast, a Roth IRA is funded with after-tax contributions. Qualified withdrawals, including earnings, are entirely tax-free in retirement, provided certain conditions are met.

A Simplified Employee Pension (SEP) IRA is a retirement plan used by self-employed individuals and small business owners. Contributions to a SEP IRA are made by the employer and are tax-deductible to the business. A Savings Incentive Match Plan for Employees (SIMPLE) IRA is an employer-sponsored retirement plan for small businesses that combines features of a 401(k) and an IRA. It requires employer contributions and allows both employee and employer contributions.

Aggregate Annual Contribution Limits

The Internal Revenue Service (IRS) imposes an aggregate annual limit on contributions to all Traditional and Roth IRAs combined. For example, for the 2025 tax year, the total amount an individual can contribute to any combination of Traditional and Roth IRAs is $7,000, or $8,000 if aged 50 or older. This means an individual cannot contribute the maximum to a Traditional IRA and then contribute the same maximum to a Roth IRA in the same year; the total across both must not exceed the limit.

Contributions to SEP IRAs and SIMPLE IRAs operate under separate limits and do not count towards the aggregate Traditional and Roth IRA contribution limits. For SEP IRAs, contributions are a percentage of an employee’s compensation, up to a maximum dollar amount, such as $69,000 for the 2024 tax year. SIMPLE IRA contributions also have their own limits, for example, $16,000 for the 2024 tax year, with an additional catch-up contribution for those aged 50 and over.

Spousal IRA contributions allow a working spouse to contribute to a non-working spouse’s IRA, subject to the same annual limits for Traditional and Roth IRAs. Catch-up contributions, for individuals aged 50 and over, also apply to the aggregate limit across all Traditional and Roth IRAs.

Distribution Rules from Multiple Accounts

For Traditional, SEP, and SIMPLE IRAs, which are funded with pre-tax dollars, the “pro-rata rule” applies to distributions. This rule dictates that if an individual has both deductible and non-deductible contributions across all their pre-tax IRAs, any distribution is considered a mix of taxable and non-taxable amounts based on the total value of all pre-tax IRAs combined. Tracking non-deductible contributions, often reported on IRS Form 8606, is important to accurately calculate the non-taxable portion of withdrawals.

Roth IRA distributions follow a “First-In, First-Out” (FIFO) ordering rule across all Roth IRA accounts. This means that contributions are considered withdrawn first, followed by converted amounts, and then earnings. Contributions and converted amounts are tax-free and penalty-free. Earnings become tax-free and penalty-free only after the account has been open for at least five years and the account holder meets a qualifying condition, such as reaching age 59½. This FIFO rule applies to all Roth IRAs held by an individual, not just the specific account from which the distribution is taken.

Required Minimum Distributions (RMDs) apply across multiple Traditional, SEP, and SIMPLE IRAs once the account holder reaches age 73. While the total RMD amount is calculated based on the combined balance of all such accounts, the individual has the flexibility to satisfy this obligation by taking the entire RMD from one account or by withdrawing portions from multiple accounts. Early withdrawals, taken before age 59½ and without meeting specific exceptions, are subject to a 10% federal penalty tax in addition to regular income tax.

Account Management and Fund Transfers

Maintaining multiple IRA accounts requires careful record-keeping for accurate tax reporting and compliance. Tracking non-deductible contributions made to Traditional IRAs is essential for determining the taxable portion of future distributions under the pro-rata rule. Financial institutions provide annual statements, including IRS Form 5498, which reports IRA contributions, and Form 1099-R for distributions.

When moving funds between IRA accounts or from other retirement plans into an IRA, there are two primary methods for transferring funds. A direct rollover, also known as a trustee-to-trustee transfer, involves the funds being moved directly from one financial institution to another without the account holder ever taking possession of the money. This method is preferred as it avoids tax withholding and the strict 60-day deadline for re-depositing funds. The receiving custodian initiates the transfer process.

Alternatively, an indirect rollover, or 60-day rollover, involves the funds being distributed directly to the account holder, who then has 60 days to deposit the money into another eligible retirement account. This method carries more risk, as failure to complete the rollover within the 60-day period can result in the distribution being treated as a taxable withdrawal, potentially subject to income tax and a 10% early withdrawal penalty if the account holder is under age 59½. A mandatory 20% federal income tax withholding applies to distributions from employer-sponsored plans like 401(k)s when taken as an indirect rollover, though this amount can be recovered if the full amount is rolled over.