One of the most difficult, challenging, and turning points of life for everyone is retirement. After retirement, you have no work and, thereby, no source of income. So, people save a small percentage of their income for their retirement so that they can have some savings to spend for the rest of their lives.
A Roth IRA is a kind of savings account in which people contribute a specific part of their income to use at the time of their retirement.
But, there are many questions that are put forth, such as: what exactly is this account for; what is the difference between this account and a traditional IRA account; can a person have more than one Roth account or not; and many more. Let us look into these questions in detail.
An Overview of the Roth IRA
The term was coined in late 1997 when there was a need for an alternative to the traditional IRA account. As a substitute for traditional IRA accounts, the Roth IRA was created. Although the Roth IRA is not much different or unique whereas it resembled the traditional account, there is one significant distinction between the two.
In a traditional IRA account, when you contribute a fixed amount of your salary as savings, it is non-taxable. But, when you retire and start withdrawing from a traditional IRA account, it is seen as a source of income. Hence, taxable. On the other hand, in a Roth IRA account, while contributing to the account, you also pay tax on your income. However, when you retire and begin withdrawing from it, it is not taxable for up to five years.
Many people opt for a Roth IRA account and prefer to pay taxes when they are in the course of their employment. But when it came to investors, they believed in using a traditional IRA account. Saving the money on tax before and paying it after retirement.
Is It Possible To Have Multiple Or Hundreds Of Roth IRAs?
There is no restriction on the number of Roth IRA accounts, so yes, you are allowed to have more than one.
You may open as many as you wish; two, three, four, five, or ten; twenty, thirty; and whenever you wish. No matter how many Roth IRAs you have, though, you should not contribute more than what is allowed. There is a limit set by the government to ensure the proper use of the Roth IRA and to prevent any kind of fraudulent activity, and your total contribution should be within these limits.
For example, if the government has set a limit of $6,000 per year, then you will be able to contribute only $6,000 per year to your Roth IRA account. No matter how many accounts you have, two, three, four, or even more, the total contribution of these accounts should not exceed $6,000.
Why Do People Frequently Require Multiple Roth IRAs?
To Save for Different Purposes
It is not necessary for a person to save only for their retirement. There may be several other reasons for saving as well, such as: to meet an emergency situation; to buy something; to save for a house or car; and many more. When there is more than one reason to save, the reason to open several Roth IRA accounts also emerges.
To Increase your Insurance Protection against any Misfortune
Most investment accounts are covered by the FDIC, which provides insurance on your account. Your account is secured by insurance and if something goes wrong, the claim will amount to $250,000. So if you open more than two or three accounts, they will also be secured by the same insurance amount.
Simply the Process of Distribution
If you are saving in a Roth IRA to give it to your inherent or upcoming generation, then multiple Roth IRA accounts make this work easier. It simplifies the process of distributing and dividing your savings among your loved ones.
Helps in Tax Diversification
Another reason why people opt for more than one Roth IRA is that there are different tax breaks for different IRAs. If you have more than one Roth IRA at the time of withdrawal, you do not need to pay any tax. So, this means you can withdraw any amount from any Roth IRA without paying any tax.