How Many IRAs Can One Person Have?

Individual Retirement Arrangements (IRAs) serve as a valuable tool for individuals seeking to save for retirement with tax advantages. These accounts offer a structured way to accumulate funds, often providing tax-deferred growth or tax-free withdrawals in retirement, depending on the account type. A common query involves understanding how many IRA accounts a person can maintain. While there is no restriction on the number of IRA accounts an individual can establish, it is important to recognize that crucial rules govern the total amount that can be contributed across all such accounts annually. This distinction between the number of accounts and overall contribution limits is central to effective retirement planning.

The Number of IRA Accounts Allowed

An individual faces no legal limit on the number of Individual Retirement Arrangement accounts they can open and hold simultaneously. This allows a person to establish multiple Traditional IRAs, Roth IRAs, or a combination of both types across various financial institutions. For instance, one could have a Traditional IRA at a brokerage firm and a Roth IRA at a bank, in addition to another Traditional IRA with a different investment company.

The primary constraint, however, does not lie in the quantity of accounts but rather in the total financial input permitted each year. Opening more IRA accounts does not increase the overall amount an individual is allowed to contribute annually. All contributions made to an individual’s Traditional and Roth IRA accounts must collectively adhere to a single, aggregate annual limit set by the Internal Revenue Service (IRS). This framework ensures that while account management can be diversified, the tax-advantaged savings benefit remains within specified boundaries.

Understanding Different IRA Types

Several types of Individual Retirement Arrangements exist, each with distinct features.

Traditional IRA

A Traditional IRA generally allows for contributions that may be tax-deductible in the year they are made, depending on income and workplace retirement plan participation. The earnings within a Traditional IRA grow on a tax-deferred basis, meaning taxes are typically paid only upon withdrawal in retirement.

Roth IRA

Conversely, a Roth IRA is funded with after-tax dollars, meaning contributions are not tax-deductible. The significant advantage of a Roth IRA is that qualified withdrawals in retirement, including both contributions and earnings, are entirely tax-free.

SEP IRA

Beyond these personal IRA types, Simplified Employee Pension (SEP) IRAs and Savings Incentive Match Plan for Employees (SIMPLE) IRAs cater primarily to self-employed individuals and small businesses. A SEP IRA is an employer-funded retirement plan where contributions are made by the employer to an IRA set up for each eligible employee. These contributions are separate from an individual’s personal Traditional or Roth IRA contributions and are tax-deductible for the employer. Employees cannot directly contribute to a SEP IRA; only the employer makes contributions.

SIMPLE IRA

A SIMPLE IRA is an employer-sponsored retirement plan available to small businesses, typically those with 100 or fewer employees. Both employees and employers can contribute to a SIMPLE IRA. Employee contributions are made through salary deferrals, and employers are generally required to make either matching contributions or a fixed percentage non-elective contribution for eligible employees. These employer and employee contributions to a SIMPLE IRA are distinct from contributions made to personal Traditional or Roth IRAs.

How Contribution Limits Apply Across Accounts

A unified annual contribution limit applies to the total amount deposited into Traditional and Roth IRAs. This means that all contributions made to any combination of Traditional and Roth IRAs in a given tax year must not exceed a single, combined maximum amount. For example, if an individual is eligible to contribute a specific annual amount, they can allocate this total across one Traditional IRA and one Roth IRA, or across multiple accounts of the same type, as long as the sum does not exceed the limit. An additional “catch-up” contribution is permitted for individuals who reach age 50 or over by the end of the tax year, allowing them to contribute a larger total amount to their combined Traditional and Roth IRAs.

Contributions to SEP IRAs and SIMPLE IRAs operate under separate rules and do not count toward the aggregate annual limit for Traditional and Roth IRAs. SEP IRA contributions are made solely by the employer and have their own higher limits, typically based on a percentage of compensation. Similarly, SIMPLE IRAs have distinct contribution limits for both employee salary deferrals and mandatory employer contributions. These plans are designed with their own sets of regulations, ensuring they function independently of personal IRA contribution ceilings.

Careful tracking of all contributions across all IRA accounts is essential to avoid exceeding the annual limits. Over-contributing to an IRA can result in a 6% excise tax on the excess amount for each year it remains in the account. This penalty is imposed annually until the excess contribution, along with any earnings attributable to it, is removed from the account. The IRS requires individuals to report and address excess contributions to prevent ongoing penalties.

Required Minimum Distributions from Multiple IRAs

As individuals approach retirement, understanding Required Minimum Distributions (RMDs) becomes an important aspect of managing multiple IRA accounts. RMDs are specific amounts that the IRS mandates account owners to withdraw annually from their tax-deferred retirement accounts, generally starting at a certain age. The age at which RMDs begin has been adjusted by recent legislation, with individuals now typically required to start taking these distributions when they reach age 73. This rule applies to Traditional, SEP, and SIMPLE IRAs, as these accounts are tax-deferred.

For individuals holding multiple Traditional, SEP, or SIMPLE IRA accounts, the RMD calculation involves a specific aggregation rule. While the RMD amount must be determined separately for each individual Traditional, SEP, or SIMPLE IRA account, the total RMD amount can be withdrawn from any one or a combination of these accounts. For example, if someone has two Traditional IRAs, they would calculate the RMD for each account individually, but they could then withdraw the combined total from just one of those accounts, or split the withdrawal between them. This provides flexibility in managing withdrawals from various tax-deferred retirement holdings.

Roth IRAs, however, operate under different RMD rules for the original owner. Original owners of Roth IRAs are generally not subject to RMDs during their lifetime. This unique feature allows Roth IRA assets to continue growing tax-free for the owner’s entire life, providing additional flexibility in retirement income planning and estate considerations. The rules for inherited Roth IRAs differ, but for the original account holder, there is no requirement to take distributions at any age.