Traditional individual retirement accounts let you take tax deductions for contributions and not pay taxes on the money until you take withdrawals. There's no limit on the number of different traditional IRA accounts you can have, but just because the Internal Revenue Service lets you have more than one doesn't mean it's necessarily a good idea.
No Extra Contributions
Just because you have multiple traditional IRAs doesn't mean you're allowed higher contribution limits. Instead, the contribution limit applies cumulatively to all your traditional IRAs -- and Roth IRAs -- combined. For the 2013 tax year, you're limited to contributing no more than $5,500 or your total compensation for the year, whichever is less. So, if you put $5,000 in your first traditional IRA, you can't contribute more than $500 to your second traditional IRA.
Having multiple traditional IRAs may help you diversify your retirement assets, especially if there are specific ways you want to invest the money that aren't all offered by one financial institution. For example, say you want to have some of your IRA money in an aggressive mutual fund offered by Brokerage A, but also keep some in a CD offered by Bank B. You can have two different traditional IRAs to accomplish your goals.
Investing at multiple financial institutions can sock you with multiple management fees -- if you have just one account, of course you only have to pay one fee. In addition, some financial institutions may reduce or even waive some of the management fees if your account balance is large enough. If you split up your retirement savings into smaller accounts, you're less likely to qualify for the best deals on fees.
The IRS limits you to one rollover per IRA account per 12-month period. But, if you have multiple IRAs, you can do one rollover from each account per year. In addition, there's an exception to the 10 percent early withdrawal penalty if you treat an IRA like an annuity -- that is, if you take substantially equal distributions for the longer of five years or until you take turn age 59 1/2, whichever is longer. If you have two traditional IRAs, you can set up the distributions from one and not have to take them from the other, leaving at least some of your retirement savings untouched.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."