Can You Have Multiple IRAs? Rules You Need to Know

Individuals can have multiple Individual Retirement Arrangements (IRAs). These tax-advantaged accounts help individuals save for retirement. While there is no federal limit on the number of IRAs one can establish, holding more than one account involves understanding specific rules and limitations that govern contributions and distributions. Understanding these rules is important to maximize benefits and ensure compliance.

Understanding Different IRA Types

Individual Retirement Arrangements (IRAs) include several types, each with distinct tax treatments and purposes. A Traditional IRA allows for tax-deductible contributions, reducing taxable income in the contribution year. Investments within a Traditional IRA grow on a tax-deferred basis, with taxes becoming due only upon withdrawal in retirement, at which point distributions are taxed as ordinary income.

A Roth IRA operates differently, funded with after-tax contributions; contributions are not tax-deductible. Qualified withdrawals in retirement, including contributions and earnings, are entirely tax-free. Eligibility for direct contributions to a Roth IRA is subject to income limitations, which vary based on filing status and modified adjusted gross income.

Beyond personal IRAs, employer-sponsored IRAs cater to specific employment situations. A Simplified Employee Pension (SEP) IRA is for self-employed individuals and small business owners. Contributions to a SEP IRA are made by the employer on behalf of eligible employees, and these contributions are tax-deductible for the employer. The account is owned and controlled by the employee.

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is an employer-sponsored retirement plan, available to small businesses with 100 or fewer employees. This plan allows both employees to make salary reduction contributions and requires employers to make either matching contributions or a fixed percentage contribution to their employees’ accounts. SIMPLE IRAs are designed to be a simpler, less costly alternative to more complex retirement plans like 401(k)s.

Contribution Rules for Multiple IRAs

While an individual can hold several IRAs, a single, combined limit applies to the total amount contributed to Traditional and Roth IRAs annually. For example, in 2024 and 2025, the combined contribution limit for these accounts is $7,000 for individuals under age 50. For example, contributing $4,000 to a Traditional IRA leaves $3,000 available for a Roth IRA in the same year.

Individuals aged 50 and older are permitted to make additional “catch-up” contributions to their Traditional and Roth IRAs. For both 2024 and 2025, this catch-up contribution is an extra $1,000, raising the total combined limit to $8,000 for those eligible.

Contributions to SEP IRAs and SIMPLE IRAs operate under separate limits and do not count towards an individual’s Traditional or Roth IRA contribution caps. For a SEP IRA, the maximum contribution for 2024 is the lesser of 25% of an employee’s compensation or $69,000. Employers make this contribution, including self-employed individuals on their own behalf.

For a SIMPLE IRA, employees can contribute up to $16,000 in 2024, with an additional catch-up contribution of $3,500 for those age 50 and over, totaling $19,500. Employers are also required to contribute to SIMPLE IRAs, either through a matching contribution (up to 3% of compensation) or a non-elective contribution (2% of compensation).

Spousal IRA rules allow a working spouse to contribute to an IRA on behalf of a non-working or low-earning spouse, provided they file jointly and have sufficient earned income. This allows couples to save for retirement in two separate IRAs, potentially doubling their combined savings capacity while adhering to individual contribution limits.

Practical Aspects of Multiple IRAs

Managing multiple IRA accounts requires careful tracking and reporting for tax compliance. When non-deductible contributions are made to a Traditional IRA, track these amounts using IRS Form 8606. This form helps establish the “basis” in the IRA, preventing the same money from being taxed again upon withdrawal in retirement.

Required Minimum Distributions (RMDs) apply once individuals reach age 73. If an individual holds multiple Traditional, SEP, or SIMPLE IRAs, the RMD must be calculated for each account separately. However, the total RMD amount can be satisfied by withdrawing funds from one or more of these aggregated IRAs. Roth IRAs do not have RMD requirements for the original owner during their lifetime, offering flexibility in distribution planning.

Consolidating multiple IRAs into a single account simplifies management and can reduce overall fees. This process, known as a rollover, involves transferring funds from one IRA to another, or from an employer-sponsored plan like a 401(k) to an IRA. Direct rollovers, where funds move directly between financial institutions, are the simplest and avoid any tax withholding.

An indirect rollover involves the funds being paid directly to the account holder, who then has 60 days to deposit the money into another eligible retirement account to avoid taxes and penalties. The IRS limits indirect IRA-to-IRA rollovers to one per 12-month period, regardless of the number of IRAs owned. Consolidating accounts can streamline RMD calculations and provide a unified view of one’s retirement portfolio.

Holding different types of IRAs supports varied investment strategies. Individuals might use a Roth IRA for aggressive growth investments, capitalizing on the tax-free growth and withdrawals in retirement. Conversely, a Traditional IRA might be used for more conservative investments or for funds where the tax deduction for contributions is a primary benefit. This approach allows for diversification not only across asset classes but also in tax treatment, aligning different accounts with specific financial goals.