Questions you should ask before opening multiple IRA accounts

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Many people wonder if you can open multiple IRA accounts, and the short answer is yes, it is something that is legally allowed. However, just because it is legal doesn’t necessarily mean that it’s something you should do.

There are many important things to take into consideration when opening multiple IRA accounts. Here are the key questions you should ask yourself before setting up multiple IRAs.

Do you need the tax benefits of both a traditional and Roth IRA account?

  • This is the main reason why people opt to open multiple IRA accounts. Traditional IRA accounts give you tax breaks for deposits during the year, but Roth IRAs give you tax breaks in the year that you withdraw them. 
  • There are advantages and disadvantages to using both types of IRAs. You might opt to use a traditional IRA for a personal benefit today (such as a tax deduction). 
  • On the other hand, use a Roth IRA for a long-term investments to capture the benefit when you truly retire and withdraw tax free money. 

Are you willing to manage the paperwork for two IRAs?

  • While multiple IRAs can come with tax benefits, they can also come with a lot of extra paperwork. 
  • This means higher chances of making mistakes with your paperwork or taxes, or missing important deadlines that could negatively affect your account’s growth. 
  • Before you get set up with multiple IRAs, be realistic with yourself and decide if you are willing to spend the extra time and energy to manage two accounts.

Do you have a good financial institution on your side?

When opening any financial account, it’s important to work with providers who are going to meet your needs.

Is their staff friendly, knowledgeable, and available to help when you have problems? Do they offer the investment options that you need? Doing your research before choosing an account provider is crucial.

After pondering all the pros and cons of opening multiple IRA accounts vs. one IRA account, you will be ready to make the best choice for you and your financial future. 

If you are interested in opening an IRA account, contact Quest Trust Company today! QTC offers completely self-directed IRAs with flexible investment options and fast processing times. This gives you more control over the way you manage your money and plan for the future.

Three Employer-Sponsored Retirement Plan Options

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If you want to supply your employees with retirement benefits, you have three major options. You can offer 401(k), SEP IRA or SIMPLE IRA plans. 

Each solution provides different advantages, so it’s wise to learn the details on all three options and carefully compare them before making a choice.

Contributions

The SIMPLE IRA limits total yearly employee deposits to $19,000 or $22,000 after the age of 50. Both 401(k)s and SEP IRAs permit substantially larger contributions. Total deposits are capped at $57,000. Staff members over 50 years old can add more money to their retirement accounts as a “catch up”.

Both 401(k)s and SIMPLE IRAs permit employees to contribute funds whereas SEP IRAs do not provide this option. The employer is fully responsible for funding an SEP program. Companies can deposit amounts equaling as much as one-quarter of workers’ wages in SEP or 401(k) accounts.

Complexity

Both types of IRAs are simpler to establish and maintain than 401(k) plans. This saves time while reducing administrative costs. 

The process of creating an SEP program involves several steps, such as:

  • Producing a legal document.
  • Supplying said document to staff members.
  • Opening separate accounts for individual employees. 

Pre-written, ready-to-use agreements are available.

Qualifications

A company must have no more than 100 staff members to use a SIMPLE IRA. On the other hand, a SEP IRA would be used for sole-proprietors or those with few employees or employees that may be seasonal. The solo 401(k) plan requires an individual to have NO employees in any companies they may own.

Employees must earn a minimum of $5,000 per year in order to enroll in the SIMPLE accounts. The income requirement for SEP IRAs is only $600 and contingencies for eligibility can be made. For example, being over the age of 21 and having worked for the company for at least 3 of the last 5 years.

Similarities

All three options have penalties for people who withdraw money at less than 59.5 years of age. This fee equals one-tenth of the withdrawn amount. Federal taxes are usually deducted from withdrawals, even after a worker reaches retirement age. Nonetheless, employer-sponsored retirement plans are treated favorably by the IRS.

Please contact us to speak with a knowledgeable IRA Specialist to set up accounts or learn more about the above-mentioned options.

We serve clients promptly, offer a wide range of employee retirement solutions and waive many of the fees that competitors charge.

References

https://www.investopedia.com/ask/answers/102714/what-are-main-differences-between-simplified-employee-pension-sep-ira-and-simple-ira.asp

https://twocents.lifehacker.com/the-sep-ira-limit-is-increasing-in-2019-1830310964

https://www.fool.com/investing/what-is-a-sep-ira.aspx

https://www.investopedia.com/ask/answers/10/why-employer-matches-401k.asp