Roth IRAs offer a flexible, convenient alternative to traditional retirement accounts, particularly for younger workers.
By contributing after-tax dollars, you can withdraw funds – contributions and earnings – in retirement tax-free once specific conditions are met.
A traditional IRA, on the other hand, is funded with pre-tax dollars, but withdrawals are taxed as regular income once you’ve hit retirement. A Roth IRA allows you to pay your tax dues upfront, which is great news for those in lower tax brackets who are likely to be in higher ones when they retire.
As helpful as they are, Roth IRAs only allow you to contribute up to $5,500 per year ($6,500 if you’re 50 or older), leaving many consumers wondering if it’s possible to open more than one Roth IRA.
The answer is yes and no – and here’s why.
Can I have more than one Roth IRA?
It’s perfectly legal to have more than one Roth IRA, just as it’s legal to have a traditional IRA and a Roth IRA. However, no matter how many individual retirement accounts you have, you can still only contribute $5,500 or $6,500 each year, depending on your age.
Even if those accounts are with different institutions – say, Fidelity and Vanguard – the IRS still views all your retirement accounts as one. So although it’s possible to have multiple Roth IRAs, the IRS bases contribution limits on “your total contributions” to all accounts.
That’s the yes-and-no part of the equation: you can technically have multiple Roth IRAs, but you can’t contribute multiple times the yearly limit.
However, there is one way to contribute more than just your own $5,500 if you’re married to someone who doesn’t work. If you’re the sole income provider for a household and you’re married to a stay-at-home parent, for example, you can take advantage of having an additional IRA in your non-working spouse’s name.
The Spousal IRA
A spousal IRA is a retirement account that’s opened in the name of a non-working spouse.
“If you file a joint return and have taxable compensation, you and your spouse can both contribute to your own separate IRAs,” says the IRS website.
If you’re married, file a joint return and meet the income guidelines, you can contribute a combined $11,000 each year, even if your spouse doesn’t work ($13,000 if you’re 50 or older). This effectively doubles what you can set aside to an IRA each year, though it’s important to note that for legal purposes, the money and the spousal IRA are both in the non-spouse’s name. That can play a role in future legal situations like divorce.
If you’re looking at multiple Roth IRAs to contribute more each year, having a spousal IRA is one of the only legal ways to do so.
The Pew Research Center estimates that there are more than 10 million stay-at-home moms – while 6 percent of all dads stay at home – which means there are plenty of households across the country that can take advantage of spousal IRAs.
Reasons to Open Multiple Roth IRAs (or Avoid It)
Although you can’t contribute more than the IRS’s annual limits, there are a few good reasons to open up multiple accounts. If you like to keep your finances extremely organized and siloed, it can be helpful to have different Roth accounts that serve separate needs.
One account may be focused on general retirement, while another may be used for a specific purpose, like travel or entertainment once you’ve retired.
You can also use multiple accounts to diversify your investments even more than you might with just one account, even if that account itself is well-diversified. In either case, opening more than one account is simply based on your personal preferences for keeping track of your finances over time.
But an extra account can come with additional fees, and the paperwork around tax time grows with each separate account. If you’re looking to minimize the extra legwork involved in your retirement planning, then sticking to one Roth IRA (and maybe one IRA) is an easier way to go than managing multiple Roth accounts.
The Roth IRA Strategy We Wish We’d Built, Our Next Life