Multiple Roth IRA Accounts

Can you have multiple Roth IRA accounts?

That's a good question.

While you can host your Roth IRA with multiple financial institutions, you can only have one Roth IRA account.

So what does this mean?

It means that, in the eyes of the IRS, you only have one Roth IRA account, but...

You can host that Roth IRA with any number of financial institutions.

Multiple Roth IRA Account Trustees or Custodians

In order to open a Roth IRA, the federal government requires you host your account with a "trustee" or "custodian."

So what or who qualifies as a trustee or custodian?

Your Roth IRA trustee or custodian must be a federally insured bank, credit union, savings and loan, brokerage firm, or other financial entity designated by the IRS to serve as a trustee or custodian for Roth IRAs.

The trustee or custodian is then responsible for oversight of the administrative functions of your Roth IRA, basically notifying the government of the account's existence for tax purposes.

So even though in the eyes of the government you only have one Roth IRA...

You can have multiple trustees or custodians for your Roth IRA.

This creates the illusion of multiple Roth IRA accounts, and thus, confuses people who believe they have multiple Roth IRAs, when they do not.

For example, you might have a Roth IRA account set up at Scottrade, Sharebuilder, , and Charles Schwab. In this case, you have four independent trustees or custodians of your Roth IRA - Scottrade, Sharebuilder, , and Charles Schwab.

So while your Roth IRA is divided among four custodians, those four custodians constitute a single Roth IRA account in the eyes of the federal government.

Does that make sense?

Only One Roth IRA Account

So regardless of what anyone tells you, you can NOT open multiple Roth IRA accounts. Under federal law, you can only have one Roth IRA.

Your maximum annual contribution limit for that Roth IRA remains the same whether you have a single Roth IRA custodian or five Roth IRA custodians.

For example...

Let's say you're 26 years old. Your maximum annual Roth IRA contribution limit is $5,000. You also have open accounts (designated as Roth IRAs) with five discount brokers.

What is the maximum amount you can contribute in the current tax year?

$5,000.

You can NOT contribute $25,000 just because you have five brokerage accounts.

While you can contribute to each of those accounts, the $5,000 contribution limit applies across the board.

So, in this example, you can contribute $1,000 to each brokerage account or $5,000 to just one of those accounts or any combination of accounts you wish as long as the total amount of the contributions adds up to no more than $5,000.

Only One IRA Account

In fact, as far as the IRS is concerned, you only have one IRA account.

Again, you can have a Traditional IRA and a Roth IRA at the same time. Both can be open, and both can be funded in the same tax year...

But what you can NOT do is make a maximum contribution to your Roth IRA and your Traditional IRA as if you only had one or the other. Your IRA contribution limit applies across all the IRAs you own, not each account you have.

For example...

Suppose you're 35 years old with adjusted gross income of $97,000 per year. You can make a maximum annual Roth IRA contribution of $5,000. Your maximum contribution limit for a Traditional IRA is also $5,000...

Does that mean you can contribute $5,000 to your Roth IRA and $5,000 to your Traditional IRA, for a grand total of $10,000?

No.

The $5,000 maximum contribution limit applies to all your IRAs, so you can only contribute a maximum of $5,000 across all accounts.

So, in this instance, you can contribute $2,500 to your Roth and $2,500 to your Traditional IRA. Or you can contribute any combination thereof which adds up to $5,000. But you can NOT exceed the $5,000 contribution limit without triggering an excess Roth IRA contribution.

Conclusion

Despite what people around the office water cooler say, you can NOT have multiple Roth IRA accounts.

You can have active financial accounts with as many Roth IRA custodians as you want, but...

You can only have one Roth IRA.

That Roth IRA is subject to an annual contribution limit, and the limit applies across all open accounts, including your Traditional IRA and any other IRAs you choose to open and contribute to.

If in doubt, just remember this rule...

One Roth IRA per individual; One annual contribution limit for all your IRAs, regardless of type.

Remember those rules, and you won't have to worry about an excess Roth IRA contribution.