Is It Smart to Have Multiple Roth IRAs? 5 Compelling Reasons to Consider

Having multiple Roth IRAs is completely legal and can be a smart financial strategy for many investors. The IRS places no limits on how many Roth IRA accounts you can open, though your total annual contributions across all accounts still can’t exceed the yearly limits. For 2024, those limits are $7,000 for people under 50 and $8,000 for those 50 and older.

But just because you can have multiple Roth IRAs doesn’t mean you should. Let’s dig into the advantages and potential drawbacks to help you decide if this strategy makes sense for your retirement planning.

The Short Answer

Yes, it can be smart to have multiple Roth IRAs depending on your financial goals, investment strategy, and estate planning needs. However, the strategy comes with both advantages (like investment diversification and beneficiary planning) and disadvantages (like increased paperwork and potential fees).

5 Smart Reasons to Have Multiple Roth IRAs

1. Investment Diversification Across Different Providers

One of the biggest advantages of having multiple Roth IRAs is the ability to diversify your investments across different financial institutions and investment types.

For example:

• One Roth IRA might focus on stocks and ETFs at a traditional brokerage
• Another could be a self-directed Roth IRA for alternative investments like real estate or cryptocurrency
• A third might hold more conservative investments like bonds or fixed-income assets

This approach allows you to take advantage of different investment opportunities that might not be available through a single provider Some financial institutions specialize in specific investment types or offer unique investment options that others don’t

As Shawn Plummer, a Retirement Planner, notes “Holding multiple Roth IRAs allows you to diversify your investments across different providers For example, one Roth IRA might focus on stocks and ETFs, while another could prioritize real estate investment trusts (REITs) or fixed-income assets like annuities”

2. Strategic Beneficiary Planning

Each Roth IRA can have different beneficiaries making estate planning more straightforward and potentially reducing conflicts among heirs.

“Designating beneficiaries is a crucial step when establishing a Roth IRA,” according to The Entrust Group. “While it’s possible to name multiple beneficiaries for a single account, designating different individuals for separate accounts can help prevent conflicts among beneficiaries following your passing.”

This approach allows you to:

• Designate different family members for different accounts
• Set up separate accounts for charitable giving
• Create specific investment strategies tailored to each beneficiary’s needs

3. Goal-Oriented Savings with Different Timelines

Having multiple Roth IRAs lets you earmark funds for different financial goals with varying time horizons.

The Entrust Group explains: “Multiple Roth IRAs can be designated for different financial goals. For example, an individual might use one account for their personal retirement savings and another for qualified education expenses.”

This separation can help you:

• Keep long-term retirement funds separate from funds you might need sooner
• Maintain different risk profiles for different goals
• Track progress toward specific objectives more clearly

4. Protection Against Financial Institution Failure

Though rare, financial institutions can fail. Having your retirement savings spread across multiple institutions provides additional protection.

The Money Know How points out: “Your IRA assets will be covered by FDIC or SIPC insurance, depending on the kind of organization that manages your account and how you invest the funds inside your IRA.”

FDIC insurance generally covers up to $250,000 per depositor per bank, while SIPC insurance protects up to $500,000 per customer per brokerage. Having accounts at different institutions effectively increases your coverage.

5. Different Investment Strategies for Different Risk Tolerances

As you approach retirement, you might want to adjust your risk tolerance for portions of your retirement savings.

“Having multiple Roth IRAs lets you pursue different investment approaches without mixing risk levels,” notes Shawn Plummer. “You might use one for aggressive growth stocks and another for a fixed index annuity with a Guaranteed Lifetime Withdrawal Benefit (GLWB) to ensure future retirement income.”

This strategy allows you to:

• Keep aggressive investments separate from conservative ones
• Easily track performance of different strategies
• Adjust your overall risk profile by changing allocation between accounts

When Multiple Roth IRAs Might Not Be Smart

Despite the advantages, there are situations where maintaining multiple Roth IRAs might not be the best strategy:

1. Increased Account Management and Paperwork

Each additional Roth IRA means more paperwork, more accounts to monitor, and more complexity in your financial life.

“Managing multiple accounts requires keeping track of more paperwork, earnings, and potential losses,” warns The Money Know How. “This can be time-consuming and overwhelming for some individuals.”

You’ll need to:

• Track contributions across all accounts to avoid exceeding annual limits
• Monitor performance across multiple platforms
• Keep track of multiple statements and tax documents

2. Potential Higher Fees

Multiple accounts often mean multiple sets of fees, which can erode your returns over time.

“Some Roth IRA providers charge account maintenance or trading fees. Having multiple accounts could result in higher costs, reducing overall returns,” cautions The Entrust Group.

These fees might include:

• Annual account maintenance fees
• Trading commissions
• Low-balance fees
• Advisory fees

3. More Difficult Portfolio Management

Managing a coherent investment strategy becomes more challenging when your assets are spread across multiple accounts.

“Monitoring and rebalancing multiple accounts can be challenging, ensuring your assets are aligned with your financial goals and risk tolerance,” explains The Money Know How.

It’s harder to:

• Maintain your desired asset allocation across accounts
• Rebalance efficiently
• Get a clear picture of your overall portfolio performance

Who Should Consider Multiple Roth IRAs?

Multiple Roth IRAs typically make the most sense for:

1. Investors with diverse investment interests – Especially those interested in alternative investments like real estate or precious metals that require specialized account types

2. People with complex estate planning needs – If you want to leave different assets to different heirs

3. Those with significant retirement assets – If your balances exceed FDIC or SIPC insurance limits

4. Investors who value flexibility – If you want to implement different investment strategies simultaneously

5. People who’ve changed jobs frequently – You might have rolled over workplace Roth 401(k)s into separate Roth IRAs

Who Might Be Better Off With a Single Roth IRA?

A single Roth IRA might be preferable for:

1. Beginning investors – Focus on mastering one account before adding complexity

2. People with smaller account balances – May not benefit from diversification across institutions

3. Those who prefer simplicity – One account means less paperwork and easier management

4. Investors with limited time – Managing multiple accounts requires more attention

5. People with simple estate plans – If you have only one intended beneficiary

How to Decide What’s Right for You

When considering whether multiple Roth IRAs make sense for your situation, ask yourself:

1. What are my investment goals? – Do different accounts help you achieve different objectives?

2. How comfortable am I with managing multiple accounts? – Be honest about your willingness to handle additional paperwork and tracking

3. Do I need access to specialized investments? – Some investments require specific account types

4. What are my estate planning needs? – Do you need separate accounts for different beneficiaries?

5. How much time do I want to spend managing my investments? – Multiple accounts typically require more time

Important Reminders About Roth IRAs

Regardless of whether you choose one Roth IRA or several, remember:

• Contribution limits apply across all accounts – For 2024, that’s $7,000 ($8,000 if 50+)
• Income limits still apply – High earners may be partially or fully ineligible to contribute directly
• The five-year rule applies to each account – Each Roth IRA has its own five-year waiting period for tax-free earnings withdrawals
• Required minimum distributions (RMDs) don’t apply – Unlike traditional IRAs, Roth IRAs don’t require withdrawals during your lifetime

The Bottom Line: Is It Smart to Have Multiple Roth IRAs?

Having multiple Roth IRAs can be a smart strategy if:

• You want to pursue different investment strategies
• You need to designate different beneficiaries
• You’re seeking additional FDIC/SIPC protection
• You want to separate funds for different goals
• You’re comfortable with the additional management responsibilities

However, it might not be worth the extra complexity if:

• You prefer a simple, consolidated approach
• You don’t need specialized investment options
• The additional fees outweigh the benefits
• You don’t have the time or inclination to manage multiple accounts

At the end of the day, what’s “smart” depends on your unique financial situation, goals, and preferences. There’s no one-size-fits-all answer.

I’ve had clients who thrived with multiple Roth IRAs because they loved the flexibility and diversification. Others found the additional accounts stressful and ultimately consolidated everything into one account. Both approaches can work, depending on your personal situation.

If you’re unsure, consider starting with one Roth IRA and adding more only if your circumstances change or specific needs arise. And as always, consulting with a qualified financial advisor can provide valuable personalized guidance based on your specific situation.

Remember, the goal isn’t to have the most sophisticated setup—it’s to create a retirement strategy that works for you and helps you achieve your long-term financial goals with confidence.

The Roth IRA 5-year rule refers to two separate waiting periods: one for your contributions and one for conversions from a Traditional IRA or 401(k). To withdraw earnings from your Roth IRA tax-free and penalty-free, the account must be at least 5 years old, and you must meet a qualifying reason like reaching age 59½ or passing away.