People who have set up IRA accounts know that the federal government sets a cap on how much individuals can contribute to these accounts each year. Not many realize, however, that there is no limit to the amount of accounts that can be set up. While there are some disadvantages to doing so, there are also some obvious advantages you should be aware of before you decide whether to do it.
1. A More Diverse Investment Portfolio
Setting up multiple IRAs can be used as a way to diversify your portfolio. However, in order for your portfolio to be truly diversified, make sure you use your IRA for different investments. Set up one IRA to focus on bonds and one for real estate. If you are someone that likes to be flexible in what you invest in then setting up multiple IRA accounts is an option you should consider.
2. Your Estate Planning Process Will Be Easier
Believe it or not, setting up multiple IRAs will take some of the guesswork out of your estate planning process. Setting up one account with multiple beneficiaries will generate less paperwork, but creating multiple accounts and assigning each different beneficiaries clarifies who gets what. When the time comes, the administrator of your estate has fewer disputes to deal with and more time to do their duties.
3. More of your investments are covered by insurance
Certain investment accounts (including some IRAs) do have insurance coverage, but only up to a certain amount – $250,000 for FDIC-insured accounts and $500,000 for SIPC-insured accounts. Having multiple IRAs allows you to spread out your retirement funds and ensures coverage for more of them in case something goes wrong.
4. Taxes
When setting up multiple IRA accounts, you can choose different types that give you various tax advantages. Some allow for tax deductions they are paid into. Others allow the taxes to be paid off in advance, so the money is tax-free when it is distributed. 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 earnings and withdraws.
In conclusion, if you’re considering opening an IRA account, ask your financial advisor any questions you may have before making a decision. Start taking control, at Quest Trust Company we give you the information you need about different types of investments. Contact a Quest IRA specialist today to discuss your options and determine the best one for you and your needs.