Can I Have a Roth IRA in Two Places?

A Roth individual retirement arrangement is a type of retirement account that lets your investments grow tax free until it's time to retire. There are rules about making withdrawals to Roth IRAs and how much you can deposit each year, but there's no rule that says you can't have a Roth IRA at more than one financial institution.

TL;DR (Too Long; Didn't Read)

You can have as many traditional or Roth IRA accounts as you want, but you're still subject to a cap on how much you can contribute to these accounts in total. You may want to open two Roth IRAs or even more with different providers if they offer different investments at different prices.

How Roth IRAs Work

A Roth IRA account allows you to make deposits during your working life in order to save for retirement. Money you put into the account is taxed normally, but when you withdraw money from the account, you'll pay no tax on any money you take out, including any investment or interest earnings that have accumulated.

They can be a good retirement option if you anticipate you'll be in a high tax bracket when you retire. There are also Roth variants of other types of retirement accounts, including workplace accounts like 401(k) and 403(b) accounts, that may be available to you based on where you work.

If you take money out of a Roth IRA or a traditional IRA before you are at the retirement age of 59 ½, you will pay a 10 percent tax penalty. There are various exceptions to this rule, and the IRS and Congress do periodically change the rules, so it can be useful to keep up with Roth IRA news if you have such an account.

How Traditional IRAs Work

Traditional IRAs offer tax savings up front when you deposit money to them rather than when you retire and take money out. With a traditional IRA, you deduct your annual contributions from your taxable income in the year that you put money into the account. When you take money out, you pay tax on it as ordinary income.

This is useful if you anticipate being in a lower tax-rate bracket when you retire than when you're working and putting money into the IRA. This applies to many people since they'll naturally make less money when they stop working.

If you withdraw money before you reach age 59 ½, you must not only pay tax on the money you take out but also pay the 10 percent penalty to the IRS. Certain exceptions apply, as with Roth IRAs.

Contribution Limits for IRAs

You are allowed to contribute a maximum of $5,500 per year to all of your Roth IRA and traditional IRA accounts every year. This limit goes up to $6,500 if you are 50 years old or older. You can't contribute more than you've earned in a particular year, even if you have the money in other savings.

For a Roth IRA, your contribution limits can be lowered if you make $120,000 or more as a single filer. If you make $135,000 or more, you're not allowed to contribute to a new or existing Roth IRA that year. For married couples filing jointly, the limits decline starting at $189,000, and if you make a collective $199,000 or more in adjusted gross income, you can't contribute to a Roth IRA that year.

Multiple Roth or IRA Accounts

There's no rule that says you can't have multiple Roth IRA or traditional IRA accounts with different providers. It's possible that you might open multiple accounts to take advantage of different investment opportunities at different financial institutions, just as you might have multiple savings accounts or credit cards to take advantage of different offers. You might also inherit an IRA from someone who passes away and choose to keep it at the institution where it was based.

Rolling Over Retirement Accounts

If you find yourself with retirement accounts at different providers or at an institution with which you've grown dissatisfied, you can consider rolling them over to a new financial institution. Rolling over IRA money means transferring it to another retirement account without a tax penalty.

Generally, you can roll over 401(k)s, 403(b)s and similar accounts into IRAs or other employer-sponsored accounts when you leave your employer. You can most easily roll conventional accounts into other conventional accounts and Roth accounts into other Roth accounts.

You generally want the institutions to transfer the funds directly from account to account without sending them to you in between. If you do receive the funds, you must deposit them within 60 days or face a tax penalty unless certain hardship exemptions apply. You may also face a 20 percent withholding tax that you must make up from your other funds when contributing to the new account, though you'll effectively get it back when you file your taxes. Work with the sending and receiving institutions to make sure the funds are sent properly. There are limits on how frequently you can roll funds over from a certain account, generally once per year.

Roth IRA Conversions

In some cases, you can convert a traditional IRA to a Roth IRA. You can do this even if your income is too high to deposit money into a regular Roth IRA. To convert, you must pay taxes on the money in the conventional IRA as if it were your ordinary income for that year. You may want to plan this for a year when you'll be in a lower tax bracket if this is possible with your income situation. Once the account is converted, you won't pay tax on that money again, even when you withdraw it. This can be advantageous if you expect big investment gains or expect to be in a high income tax bracket when you retire.

Exceptions to Withdrawal Rules

Generally, if you are under 59 ½, you will face a penalty for withdrawing money from your traditional or Roth IRA accounts, but there are some exceptions. Under the exceptions, you'll pay the tax you owe on the money in a traditional IRA or no additional tax on money in a Roth account and avoid the 10 percent IRS penalty.

If you are in the military reserves or National Guard and are called to active duty, you can often make penalty-free withdrawals from your IRA accounts. If you're buying your first home, you can withdraw up to $10,000 for related expenses with no penalty. You can withdraw money with no penalty to pay for medical insurance while you're unemployed or to pay for medical expenses in excess of 7.5 percent of your IRS adjusted gross income. You can also withdraw for certain educational expenses.

Mandatory Minimum Withdrawals

Traditional IRAs require that you begin taking minimum distributions after you reach age 70 ½ or face a hefty tax penalty. You can look up your required distributions based on your holdings and age in IRS tax tables. You do not have to take such distributions from Roth IRAs if you don't want to. However, if you inherit a Roth IRA, you must take mandatory minimum distributions from the account each year starting the year after the original owner dies, or you can simply take all the money out up front.

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