Roth IRAs are a great way to save for retirement. You don’t get to deduct contributions to Roth IRAs, but the money in the account is not taxable, and grows tax-free. You can have multiple Roth IRA accounts, but only one Roth IRA.
The IRS says you can split up your Roth IRA money into as many different accounts as you like. For example, you could open Roth IRA accounts with your bank, brokerage firm and a mutual fund firm. The IRS treats all the accounts as a single plan. For instance, Roth rules say you must be 59 1/2 and the IRA has to be five years old before you withdraw money tax-free. Because all your accounts count as just one Roth IRA, the five-year period starts when the first account is opened, and includes any future accounts.
There’s an annual limit on the money you can put in a Roth IRA. The IRS increased the limit in 2013 from $5,000 to $5,500. This cap applies to all of your Roth accounts put together, not to each separate account. Suppose you have two Roth accounts. If you put $2,500 in one, the most you can add to the second that year is $3,000. This rule applies only to your annual contributions; transfers from other retirement accounts don’t count against the annual limit.
Traditional and Roth IRAs
Although you can only have one Roth IRA, you may have a traditional IRA and a Roth IRA. In fact, you can split a traditional IRA up into different accounts, same as a Roth. The IRS still limits you to $5,500 in IRA contributions. If you put $1,500 into a traditional IRA, that leaves $4,000 you can stash in your Roth accounts.
It is okay to shift money from one Roth IRA account to another. You won’t owe the government any taxes or penalties as long as you complete the switch in 60 days. However, if you roll over funds from another kind of retirement account, you might have to pay income taxes on the transferred amount. One thing the IRS won’t let you do is move your Roth dollars into another kind of retirement plan like a traditional IRA or 401(k).
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