Is it OK to have 2 Roth IRAs?
Although you are allowed to have multiple IRAs, it might not always make sense—unless you want to hold both Roth and traditional accounts for your tax strategy. Having several IRAs of the same type won't increase the total amount you can contribute, but it might add complexity and fees.
Investment diversification. Having more than one Roth IRA is a way to diversify your investments through accounts with different financial institutions that may offer different investment options. Tax diversification. Open a Roth and a traditional IRA and you'll have a mix of tax benefits.
The Roth IRA income limits are less than $161,000 for single tax filers and less than $240,000 for those married filing jointly. These numbers are adjusted annually for inflation. Arielle O'Shea leads the investing and taxes team at NerdWallet.
If you can afford to contribute around $500 a month without neglecting bills or yourself, go for it! Otherwise, you can set yourself up for success if you can set aside about 20 percent of your income for long-term saving and investment goals like retirement. Prioritize high-interest debt, but don't ignore other goals.
There's no limit to the number of IRA accounts you can have, but your contributions must stay within the annual limit across all accounts. Having multiple accounts gives you added options related to taxes, investments and withdrawals, but it can make your investing life a bit more complicated to manage.
Key Takeaways
Contributions to a Roth IRA are made with post-tax money, meaning you pay the tax due on the money in the year you pay it in. That money, including the earnings that accrue, won't be taxed again when you withdraw it properly.
What is a backdoor Roth IRA? A backdoor Roth IRA is a conversion that allows high earners to open a Roth IRA despite IRS-imposed income limits. Basically, you put money you've already paid taxes on in a traditional IRA, then convert your contributed money into a Roth IRA, and you're done.
You're never too old to fund a Roth IRA. Opening a later-in-life Roth IRA means you don't have to worry about the early withdrawal penalty on earnings if you're 59½. No matter when you open a Roth IRA, you have to wait five years to withdraw the earnings tax-free.
You have to wait longer for the tax-savings payoff with a Roth IRA versus a traditional IRA. You pay taxes on the money before it goes into the account, meaning no tax deduction.
The income limits on Roth contributions increased for 2024, which means savers with income at or below $161,000 ($240,000 for married couples filing jointly) can contribute to a Roth IRA.
Should I max out my Roth IRA every year?
The best way to fund your Roth IRA is to invest the maximum amount permitted each year. It's a bad idea to withdraw funds, which may incur penalties and taxes, if you withdraw the earnings before age 59½ and before the funds have been in the account for five years.
Let's say you open a Roth IRA and contribute the maximum amount each year. If the base contribution limit remains at $7,000 per year, you'd amass over $100,000 (assuming a 8.77% annual growth rate) after 10 years. After 30 years, you would accumulate over $900,000.
He advises most clients to schedule automatic monthly investments to their IRA so they balance out volatility in their portfolio. “Time value of money is important, but paying yourself first is more important,” he said in an email interview.
Why would you want multiple IRAs? People like the idea of multiple IRAs because they can take advantage of different tax situations. Traditional and Roth IRAs have different structures and different tax advantages.
If you file a joint return and have taxable compensation, you and your spouse can both contribute to your own separate IRAs. Your total contributions to both your IRA and your spouse's IRA may not exceed your joint taxable income or the annual contribution limit on IRAs times two, whichever is less.
There's no limit on the number of IRAs you can have, nor on the combination of IRAs you can have. For example, you could decide to have two IRAs, both of them Roth IRAs. On the other hand, you could choose to have two IRAs, but one is a traditional IRA while the other is a Roth IRA.
Contributions to a Roth IRA aren't deductible (and you don't report the contributions on your tax return), but qualified distributions or distributions that are a return of contributions aren't subject to tax. To be a Roth IRA, the account or annuity must be designated as a Roth IRA when it's set up.
The Bottom Line. If you have a Roth IRA, you can withdraw your contributions at any time and they won't count as income. Also, the account's earnings can be tax free when you withdraw them as long as you are age 59½ or older and have had a Roth account for at least five years.
The quick answer is, “No.” While the ability to collect Social Security benefits may be restricted based on earned income and the SSA's “Earnings Test,” the SSA does not consider IRA distributions as earned income for this purpose.
The Roth IRA five-year rule says you cannot withdraw earnings tax-free until it's been at least five years since you first contributed to a Roth IRA account. This five-year rule applies to everyone who contributes to a Roth IRA, whether they're 59 ½ or 105 years old.
What is the IRA loophole?
A backdoor Roth is a loophole that avoids income limits to be eligible to contribute to a tax-free Roth IRA retirement account. The loophole: Taxpayers making more than the $161,000 limit in 2024 can't contribute to a Roth IRA, but they can convert other forms of IRA accounts into Roth IRA accounts.
Cons: All or part of a backdoor Roth IRA conversion could be a taxable event. You may have to pay federal, state, and local taxes on converted earnings and deductible contributions. Conversions could kick you into a higher tax bracket for the year.
The tax argument for contributing to a Roth can easily turn upside down if you happen to be in your peak earning years. If you're now in one of the higher tax brackets, your tax rate in retirement may have nowhere to go but down.
Unlike the traditional IRA, where contributions aren't allowed after age 70½, you're never too old to open a Roth IRA. As long as you're still drawing earned income and breath, the IRS is fine with you opening and funding a Roth.
You can convert an IRA to a Roth no matter how old you are. But if the conversion boosts your income, it could have taxing consequences. You can't contribute to a traditional IRA, at any age, if you don't have earned income.
