How many retirement accounts can you have? Earlier this week a reader asked me this same question, and I promised a response.
The specific question regarded owning both Traditional and Roth IRAs, and whether or not having an employer-sponsored 401(k) plan would affect her eligibility for those accounts. The answer is yes, you can have both types of IRAs, and no, your 401(k) plan doesn’t affect your eligibility to contribute to an IRA. Here are some more detailed answers:
Can You Have Both a Roth and Traditional IRA?
Yes. You can own both a Roth and Traditional IRA, and you can contribute to both in the same tax year. The important thing to remember is that you cannot contribute more than the maximum contribution limit across all IRA accounts in any given tax year. (More information comparing Roth vs Traditional IRAs).
Depending on your income level, the max IRA contribution limit is $6,000 ($7,000 if you are over 50).
For example, if you are under age 50, you can contribute $3,000 to a Traditional IRA and $3,000 to to a Roth IRA, or any similar combination that does not exceed $6,000.
There can also be steep fees to pay for withdrawing from your Roth IRA too early, learn more about Roth IRA withdrawal rules here.
Can You Have More than one IRA?
Yes, you can open multiple IRA accounts and they can be held with multiple companies. Again, remember not to contribute more than the contribution limit across all IRA accounts in a given tax year.
You can also have one IRA account with multiple investments within the account. This makes it easier to diversify your retirement holdings and maintain easier control over your account administration. Here are tips for maximizing your IRA contributions each year.
Can You Have More than one 401(k) Account?
Yes. A 401(k) plan is an employer-sponsored retirement plan. When you leave your job, you have to make decisions regarding your old 401(k) plan. You will need to decide whether to leave the assets in place (if allowed by your former plan’s rules), roll over the assets into an IRA, roll the assets into a new 401(k) plan, withdraw the assets in a lump sum, or transfer the assets into a qualified annuity.
For more detailed information, read about your options for your 401(k) when leaving your job. Just like with the IRAs you cannot exceed the maximum contribution for your employer-sponsored accounts across all accounts. This means you want to be careful not to exceed the max 401k contribution limits if you change jobs within a calendar year. Be sure to take previous contributions into account when setting your deferred contribution at the new employer.
What About other Retirement Plans?
There are many other retirement plans out there including SEP-IRAs, SIMPLE IRAs, solo 401(k) plans, annuities, and more. As a general rule of thumb, you can have multiple accounts for these as well.
Keep in mind there may be eligibility, contribution, and income requirements associated with these types of accounts, so you should do a little more research before opening new accounts. Here is a little help to get you started: comparing 401(k) plans and IRAs.
What Happens when I have an Employer-sponsored plan and an IRA?
When you are investing in both employer-sponsored and individual retirement account the tax system treats them as two different buckets of money. So you can put the maximum amount toward your employer-sponsored accounts and the maximum amount toward your personal IRAs without running into any tax man problems.
Just like I mentioned above, make sure you are not going over your limits on any accounts that are part of the same bucket of money. If you do, you will lose the tax benefit on whatever you put in over the contribution limit.
How Much Could You Put into Retirement Accounts
While you may not fit perfectly into this scenario, I want to give you some details on maxing out multiple accounts and getting as much as you can into your retirement savings.
For this scenario, we are going to use a person that has a regular job where the employer offers a 401(k), a Roth IRA, and a small business on the side that they use to contribute to a SEP IRA.
As of 2022, you can contribute $6,000 to your IRA/Roth IRA, $20,500 to a 401(k), and up to $61,000 in a SEP IRA or 25% of income (whichever is smaller).
We know that personal accounts and employer accounts are treated as separate buckets, but plans from different employers are also treated separately. That means if you had the income in your side business to support it, you could max out all three of these accounts and save $80,000 a year for retirement.
Pros and Cons of Multiple Retirement Accounts
Fewer accounts are usually easier to manage. For most people, consolidating retirement accounts is the best plan because it is easier to manage asset allocation, fees, withdrawals, taxes, paperwork, account questions, and transferring assets to beneficiaries.
There can be advantages of owning multiple retirement accounts, however. A good example of this would be if you had a 401(k) plan that had investment funds or low management fees that you couldn’t match elsewhere. If your current investment is better than what you can get somewhere else, there is no need to consolidate it just to reduce a small amount of paperwork.
Where to Open Retirement Accounts
There are many brokerages that allow you to open a variety of retirement accounts. Some of the top options available are:
- Ally Invest – Ally is one of the top discount brokerages. With low trading fees and the ability to open most types of accounts Ally is worth considering.
- TD Ameritrade – Known for no fee ETFs, TD Ameritrade makes it easy to invest in your retirement.
- E*Trade – A pioneer of online trading, E*Trade has grown into a full-featured brokerage with many options for investing.
My Current Retirement Accounts
I currently have a Roth IRA (with several different funds in it), two 401(k) plans, and an account with the Thrift Savings Plan (TSP) (government version of a 401(k)). I could roll my old 401(k) plan into my new one, but I haven’t decided whether or not to do that yet.
I can also roll over my TSP account into a 401(k) plan or IRA, but there is a special provision that allows military members who receive tax-free combat pay to contribute tax-free funds to their TSP account. TSP contributions are normally pre-tax contributions and are taxed upon withdrawal, but the portion of the contributions I made while in a tax-free zone can be withdrawn tax-free as well. I would lose the tax-free withdrawals if I transferred my TSP funds into a different account.
Note: Please keep in mind, this is general information. There may be other factors that affect how much you can contribute or which accounts you may be eligible for. Some of these factors include income level, type of employment, employer-sponsored retirement plans and more.