IRAs, or individual retirement accounts, are useful for many different reasons, especially if you are self-employed. There are many benefits that you can get from these retirement funds, and you are able to open up as many as you’d like. However, if you decide to open multiple accounts, it’s important to be aware of the pros and the cons. If you’re not sure why you’d need multiple accounts, these pros and cons might be good to look over and decide if maybe opening multiple accounts would be good for you.
The Basics
Before you decide whether or not multiple IRAs is a good idea for you, it is important to make sure you know about the tax benefits as well as the limitations of an IRA. Some points to remember about these accounts is that there is a maximum contribution amount allowed each year and having multiple accounts will not raise this amount. It is based off the combined contributions to all the accounts. However, this does not mean there are no other benefits that multiple IRAs could have.
The Pros
One of the most popular reasons people will invest in multiple different IRAs is because they have different assets that they want to invest that are allowed in on IRA but not another. This could include things like real estate and precious metals, which can only be invested in self-directed IRAs, or stocks and bonds, which can be invested in traditional IRAs.
Not only does having multiple accounts allow you to invest different options, but if you have different assets in different accounts then it is much easier to track how well each investment is doing. This helps make the evaluation of your retirement funds easier.
It also is helpful because then you can take advantage of both the traditional and the Roth IRA tax advantages. If you split whatever you were going to invest in one account, you can put half into the traditional IRA with tax deductions when you withdraw and half in the Roth IRA which has tax free earning and withdraws.
The Cons
Multiple accounts mean that you have more to pay attention to. You have to manage each account individually, so it is possible to miss something or make mistakes which can be more stressful if you are not detail oriented. It is possible to combine accounts so there is some flexibility if there are any changes.
Setting up multiple accounts also has an additional fee attached to it, so that is a cost to consider, although it is small. Along with this, there are minimum balance requirements for separate IRAs, so it is important to make sure you have enough to contribute to each account so that they are over the minimum balance. If you don’t have enough to contribute to both accounts, you’ll have to be willing to wait until you have the proper amount.
Whether you decide to open multiple accounts or not, the most important considerations are to educate yourself and ask your financial advisor any questions you may have before getting into new accounts.