Multiple IRAs: What you need to know


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Individual Retirement Accounts (IRAs) are a great way to save and invest for retirement. One of the biggest advantages of IRAs is that they are tax-advantaged accounts.


It may either allow for tax-deductible contributions like that of traditional IRAs or it may allow tax-free withdrawals during retirement as a Roth IRA does.


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Does the IRS Allow Having Multiple IRAs?

Yes, the IRS does not set a limit as to how many IRAs a person can have. This means that a person is allowed to have as many IRAs as they want so they can save up better for the future.


For instance, an employee is given the freedom to open both a traditional IRA and a Roth IRA at the same time or they may also opt to have multiple of the same type of IRA.


Before opening a new IRA, you should make sure that you have taken full advantage of your current IRA account(s) first since opening a second IRA may create unnecessary complexity.

Limitations of Handling Multiple IRAs

Even though the IRS does not set a limit as to how many IRAs a person can have, it is important to note that total contributions made to all the IRAs maintained should still be within the prescribed annual maximum contribution limit.

Having multiple IRAs does not mean each type of account has a set limit you can max out separately from the others.

IRA Contribution Limits

For 2022, the total yearly contribution to both traditional and Roth IRAs combined should not exceed $6,000 for those who are under the age of 50. This was the same contribution limit in 2021.


For those who are 50 and above, the total annual contribution to both traditional and Roth IRA combined is $7,000. The $1,000 difference in the limits is treated as a catch-up contribution.


In effect, if you are considering handling multiple IRAs, you can only contribute to a total of $6,000 for both your traditional IRA and Roth IRA combined. You can choose to split the total contribution limit between the two accounts at $3,000 each or distribute the amount strategically between the two at your own choice as long as you do not exceed the given limit.

Benefits of Having Multiple IRAs

While having multiple IRAs may have its limits, you can actually derive several benefits from it also.

Benefits of Having Multiple IRAs


Another benefit of handling multiple IRAs is the freedom it gives people.


Having more than one IRA account allows employees with multiple sources of income to qualify for higher contributions in each respective IRA account they have opened.


For example, someone who earns their living through two different jobs may want to handle both traditional IRAs as well as Roth IRAs according to their status instead of lumping the two incomes together.

Diverse Management of Funds

You can divide your IRA funds between several banks or brokerage companies to avoid concentrating all of them within one institution.


Having IRA accounts with separate financial institutions could lead to a healthy exposure of various asset classes and multiple investment philosophies. Additionally, you may discover that one financial institution charges significantly higher fees than the other.

Implementation of Different Investment Strategies

When you have multiple IRAs, you can opt to invest in different strategies for each IRA account. You will have the option to either be passive or active in your strategies. Such strategies may include the following:

Additionally, if you would like to have one IRA holding more aggressive investments, while the other is more conservative, breaking them out into two separate IRAs can be a helpful way to keep track of performance.

Spreading Out Different Beneficiaries per Account

Multiple IRAs will allow you to choose multiple beneficiaries for each type of IRA account. This is particularly beneficial in the event that you no longer have your spouse with you anymore and want to leave some of your IRA funds to your children instead.

Penalty-Free Early Withdrawal

This is only applicable to Roth IRAs given that they have been established for more than five years.


This is a real advantage especially when you need to withdraw money before reaching the age of 59 1/2 years which is not possible when you only have the traditional IRA unless you are willing to suffer the charges for early withdrawal.

Strategizing Tax Liabilities

Having both a traditional IRA and Roth IRA allows for some creative flexibility upon withdrawal.

If you only have a traditional IRA, you may incur a large tax liability upon retirement.


But if you have assets in both types of IRAs, you can offset taxes incurred by withdrawing from the traditional IRA with the tax-free withdrawals of a Roth IRA. A finance professional can help you make savvy decisions to minimize tax liability.

The Bottom Line

Having multiple IRAs is not something new and can actually give you more benefits than limitations provided that they are treated like individual accounts.


It will allow people to diversify their portfolios while giving them more freedom when investing their money or preparing for retirement. It can also be a way to offset tax liabilities and is one of the best ways to handle the different IRA accounts.

However, there are limits as well. You will not be able to contribute more than $6,000 each year for both your traditional IRA and Roth IRA combined.


In addition, it may cause confusion between multiple beneficiaries per account which can only worsen if you have multiple accounts with different account managers.


Also having many IRA accounts can lead to higher maintenance fees as well as management costs which would eat into your savings over time.


For these reasons, it is recommended that you seek guidance from a financial advisor before opening any new type of IRA account.


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What are the different types of taxes?


Whether you’re a newbie in the workforce or a seasoned retiree looking to do some estate planning, taxes can be complicated. With terms like “tax brackets” and “deductions,” or the differences between income vs. payroll taxes and short-term vs. long-term capital gains, you’re joining hundreds of millions of Americans who have had to figure out the confusing world of the U.S. tax code.


At a high level, taxes are involuntary fees imposed on individuals or corporations by a government entity. The collected fees are used to fund a range of government activities, including but not limited to schools, maintaining roads, health programs, as well as defense measures.


Related: What
happens if I miss the tax filing deadline?


For individuals, taxes can have a profound effect on your life, influencing decisions on marriage, employment, buying a home, investing, healthcare, charity, retiring and leaving a will. Therefore, even if you have a smart accountant, it’s important to get up to speed on the tax code.




Here’s an incomplete but detailed look at the different types of taxes that can be levied and the ways in which they’re typically calculated and imposed.





The federal government collects income tax from people and businesses, based upon the amount of money that was earned during a particular year. There can also be other income taxes levied, such as state or local ones. Specifics of how to calculate this type of tax can change as tax laws do.


In the U.S, about 200 million Americans file tax forms with the Internal Revenue Service by April 15 each year. The amount of income tax owed will depend upon the person’s tax bracket and it will typically go up as a person’s income does. That’s because, in the U.S., there is a progressive tax system for federal income tax, meaning individuals who earn more are taxed more.


There are currently seven different federal tax brackets. To find out what bracket applies, a taxpayer can look at the current IRS 2021 tax bracket chart. The amount owed will also depend on filing categories like single; head of household; married, filing jointly; and married, filing separately.


Deductions and credits can help to lower the amount of income tax owed. And if a federal or state government charges you more than you actually owed, you’ll receive a tax refund.


Property taxes are charged by local governments and they are one of the costs associated with owning a home.


The amount owed varies by location and is calculated as a percentage of a property’s value. The funds typically help to fund the local government, as well as public schools, libraries, public works, parks and so forth.


Property taxes are considered to be an ad valorem tax because they are based on the assessed value of the property.


In fact, property taxes are the most common type of an ad valorem tax. Another ad valorem application is the import duty tax where the amount due is based on the value of goods being imported from another country.


Employers withhold a percentage of money from employees’ pay and then forward those funds to the government. The amount being withheld will vary, based on a particular employee’s wages, with federal payroll taxes being used to fund Medicare and Social Security.


There are limits on the portion of income that would be taxed. For example, in 2020, a person’s income that exceeds $137,700 is not subject to Social Security tax.


Because this tax is applied uniformly, rather than based on income throughout the system, payroll taxes are considered to be a regressive tax.


These are actually two different types of taxes. The first — the inheritance tax — can apply in certain states when someone inherits money or property from a deceased person’s estate. The beneficiary would be responsible for paying this tax if they live in one of several different states where this tax exists AND the inheritance is large enough.


The federal government does not have an inheritance tax. Instead, there is a federal estate tax that is calculated on the deceased person’s money and property and it’s paid out from the assets of the deceased before anything is distributed to their beneficiaries.


There can be exemptions to these taxes and, in general, people who inherit from someone they aren’t related to can anticipate higher rates of tax.


These are the three main categories of tax structures in the U.S. (two of which have already been referenced in this post).


Here are definitions that include how they impact people with varying levels of income.


Because this tax is uniformly applied, regardless of income, it takes a bigger percentage from people who earn less and a smaller percentage from people who earn more.


As a high-level example, a $500 tax would be 1% of someone’s income if they earned $50,000; it would only be half of one percent if someone earned $100,000, and so on. Examples of regressive taxes include state sales taxes and user fees.




This kind of tax works differently, with people who are earning more money having a higher rate of taxation. In other words, this tax (such as an income tax) is based on income.


This system is designed to allow people who have a lower income to have enough money for cost of living expenses.




This is another way of saying “flat tax.” No matter what someone’s income might be, they would pay the same proportion. This is a form of a regressive tax and proportional taxes are more common at the state level and less common at the federal level.


Next up: capital gains tax that an investor may be responsible for paying when having stocks in an investment portfolio. This can happen, for example, if they sell a stock that has appreciated in value over the purchase price.


The difference in the increased value from purchase to sale is called “capital gains” and, typically, there would be a capital gains tax levied.


An exception can be when an investor sells increased-in-value stocks through a tax-deferred retirement investment inside of the account. Meanwhile, dividends are taxed as income, not as capital gains.


It’s also important for investors to know the difference between short-term and long-term capital gains taxes. In the U.S. tax code, short-term is one year or less, while long-term is anything longer. In 2020, the federal tax rate on gains made by short-term investments ranged from 10% to 37%.


For long-term investment gains, it was significantly lower at either 0%, 15% or 20%.


Jirapong Manustrong / istockphoto


Tips for tax efficient investing can include to select certain investment vehicles, such as:

  • Exchange-traded funds (ETFs): These are baskets of securities that trade like a stock. They’re tax efficient because they typically track an underlying index, meaning that while they allow investors to have broad exposure, individual securities are bought and sold less frequently, creating fewer events that will likely result in capital gains taxes.
  • Index mutual funds: These tend to be more tax efficient than actively managed funds for reasons similar to ETFs.
  • Treasury bonds: There are no state income taxes levied on earned interest.
  • Municipal bonds: Interest, in general, is exempted from federal taxes; if the investor lives within the municipality where these local government bonds are issued, they can typically be exempt from state and local taxes, as well.




In the U.S., we pay a regressive form of tax, a sales tax, on many items that are purchased. In Europe, the system works differently. A VAT tax is a form of consumption tax that’s due upon a purchase, calculated on the difference between the sales price and what it cost to create that product or service. In other words, it’s based on the item’s added value.


Here’s one big difference between a sales tax and a VAT tax: the first is charged at the final part of the sales transaction. VAT, on the other hand, is calculated throughout each supply chain step and then built into the final purchase price.


This leads to another difference. Sales taxes are added onto the purchase price that’s listed; VAT contains those fees within the price and so nothing extra is added onto the price tag that a buyer would see.


This isn’t a comprehensive list of all tax types but hopefully it provides a broad answer to questions like “What is a tax?” and “What types of taxes are there?” And hopefully it demystifies some questions you might have had about all the different tax items on a receipt or paystub.


Learn more:

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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