IRAs are Individual Retirement Accounts providing tax benefits not available with other types of investment accounts. A Roth IRA is a type of IRA account that only accepts after-tax contributions. In exchange for this, the withdrawals made from a Roth are income tax-free. When opening up a Roth, you may be surprised to learn that there is no limit to the number of Roth accounts you can open.
Features
Roth IRAs accept after-tax contributions. The 2010 maximum amount of contributions you may make to a Roth are capped at $5,000 per year if you are under age 50 and $6,000 if you are 50 or over. You receive all withdrawals from your Roth tax-free after age 59 1/2. However, you may withdraw all contributions from your Roth IRA at any time regardless of your age without a penalty and without restriction. The IRS allows you to remove your contributions prior to removing your investment earnings.
Significance
The significance of having multiple Roth IRAs is that you can hold your Roth IRA accounts, and thus your retirement income, with different brokerage firms. If different brokerages offer different investment options, you can take advantage of this fact.
Benefit
The benefit of having multiple Roth IRA accounts is that you are not committed to one brokerage. If service at one brokerage account is not what you expect or the investment options change, you won't have all of your retirement savings invested with that brokerage. Most importantly, even though brokerages are covered by a federal agency, the SIPC, in the event a brokerage goes bankrupt, you don't have to worry about having all of your money held with one firm if the firm experiences financial difficulties.
Disadvantage
You cannot contribute more than $5,000 or $6,000 to your IRA accounts. For contribution purposes, all IRAs are considered to be the same. This means that regardless of how many Roth accounts you have, the total amount of contributions to all accounts cannot total more than the maximum contribution limit for the Roth IRA.
Considerations
If you like the idea of spreading out your retirement savings across multiple Roth accounts, consider opening up a few Roth IRAs with different brokers. Don't spread your money out too much, however, since your contribution limits remain the same regardless of how many accounts you have. Consider two or three accounts. When choosing brokerages, consider brokerages with different investment options. You may consider a Roth IRA at a bank that has high yielding bank CDs, a brokerage that offers investments in precious metals, and perhaps an online brokerage with access to a variety of low-cost mutual funds and individual stocks.
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