Is It Possible to Open a Second Roth IRA?
An IRA is an individual retirement account that has certain tax advantages. The Roth IRA is a special type of IRA that is only available to individuals or couples who earn less than a certain income each year. The contributions to a Roth IRA are not tax-deductible in the year they are made, unlike traditional IRA accounts. The contributions grow tax-free until they are withdrawn at retirement. When they are withdrawn, the contributions and any earnings are paid out tax-free. All IRA accounts have annual contribution limits.
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Can You Have a Second Roth IRA?
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Yes, you can have more than one Roth IRA account. You may have separate accounts with different financial institutions or multiple accounts with the same company. However, for tax purposes the government treats all of your Roth IRA accounts as one. The contribution limits for Roth IRAs apply to the total of all your accounts. For example, in 2009 the contribution limit is $5,000 unless you are over age 50 and then the contribution limit is $6,000. If you are under 50 and have two IRA accounts, that $5,000 is the total contribution limit you can make to the accounts, not the amount you can make to each account. You could contribute $2,500 to each account, $5,000 to one account and $0 to the other or any other combination that did not exceed $5,000 total.
Altering Contributions
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Sometimes it is necessary to withdraw contributions and any gains on those contributions in a very short period of time because of changes in your income. For example, if you expected your income to be below the eligibility limit and made your contributions to the Roth IRA in February but in September you realized that you were going to make more than the limit, you would have to withdraw the contributions and any earnings on those contributions. If you put those contributions in a single Roth IRA that includes contributions and earnings from years past, it can be difficult to determine how much the earnings are.
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More Control Over Beneficiaries
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Another advantage of having multiple IRA accounts is more control over who would get the money from your accounts if something were to happen to you. Though you can designate multiple beneficiaries when you have a single Roth IRA account, each beneficiary will receive an equal share of the money. Having multiple accounts allows you to better control who will inherit the money. For example, if you wanted 80 percent of your money to go to your wife and 20 percent of your money to your alma mater, you could contribute 80 percent of the contribution limit each year to a Roth IRA account that names your wife as the beneficiary and 20 percent of the contribution limit each year to a Roth IRA account that names your college as a beneficiary.
Diversification
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Another advantage to having multiple Roth IRA accounts is diversification. When you have multiple accounts, you are hedging your investment against one of the accounts performing poorly.
Disadvantages of Multiple Roth IRA Accounts
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When you have more than one account, you will incur multiple account fees. Also, it is simpler to keep records from one account rather than several accounts.
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