Why Have More Than One Roth IRA?
In some cases, consolidating your Roth IRA accounts under a single administrator makes a lot of sense, but there are valid reasons for keeping them separate. Before you decide to consolidate all your retirement assets under one umbrella, take the time to evaluate each of those funds and look at the pros and cons of such a consolidation.
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Converted Money
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The IRS allows you to convert your traditional IRA to a Roth by paying the taxes due and moving the funds. After the conversion is complete you can withdraw the money tax-free in retirement. Keeping your converted IRA in a separate Roth can make record keeping and accounting a lot easier, and help you avoid any future hassles with the IRS.
Different Assets
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Keeping a balanced portfolio is important for all Roth IRA investors, and keeping different accounts is one way to optimize performance and lower costs across a number of different asset classes. For instance, you can set up one Roth IRA with a brokerage firm and use it to buy and sell stocks, a second with a mutual fund company and a third with a bank that lets you buy certificates of deposit. This allows you to make the most of each part of your portfolio by concentrating on what each administrator does best.
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Performance Comparison
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If you have two Roth IRA accounts with two different administrators, you can do a side-by-side comparison of those two accounts to determine which one gives you the best performance for the lowest price. It is one thing to look at performance numbers, but quite another to see those numbers reflected in dollars and cents. Once you have tracked the performance for a period of time, you can compare the results and consolidate those Roth IRA accounts with the best administrator.
Different Income Streams
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One of the major advantages of a Roth IRA is that it provides you with a stream of tax-free income you can use to meet expenses in retirement. Having more than one Roth IRA in place allows you to develop multiple streams of income and devise a strategy that can provide the cash flow you need while at the same time preserving the capital in the account. For instance, you can pull your income from the Roth IRA that has grown the most in the last year, and then switch to the other IRA if that account performs better the following year.
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