Can I Split My Traditional IRA Into Two Accounts?
Traditional IRAs are popular because of the tax benefits that come with setting one up as well as providing more investment options than 401(k) plans at most firms.
Multiple IRA accounts can make managing and rebalancing your portfolio harder, so here’s how you can determine whether splitting an IRA makes sense for you.
Tax treatment of IRA funds depends on your unique circumstances. If you anticipate falling into a lower tax bracket in retirement, traditional accounts might make more sense as withdrawal of funds incur less taxes when done so at once. But for those 59 1/2 or over who wish to access their contributions (except nondeductible ones) early without incurring the 10% early withdrawal penalty fee.
Take into account your required minimum distributions, which begin at age 70.5 and vary based on life expectancy and account value.
If you own multiple accounts, it may be possible to divide up the required minimum distributions and distribute them accordingly. Be sure to seek advice from a tax professional for guidance to make sure that any separation strategy adheres to all relevant rules; additionally it’s wise to consider any fees that might incur when splitting an IRA.
Once you’ve contributed to an IRA, it will need to be invested for maximum growth. That is why many people maintain multiple accounts – such as an employer-sponsored retirement account like 401(k), individual retirement accounts such as Roth IRAs or brokerage accounts – in order to maximize growth of their money.
Maintaining multiple accounts is often beneficial, particularly if you want to invest with different firms or use different investment strategies. For instance, opening one IRA with a low-cost robo-advisor that utilizes ETFs while also having another with a brokerage firm allows you to engage in stock picking by trading individual stocks can help give your portfolio structure and structure.
Separate IRA accounts can also make things simpler for beneficiaries when an account owner dies, as distributions need not be taken over the beneficiary’s entire life expectancy. By splitting it beforehand or after, beneficiaries can take distributions in accordance with their own lifespans.
Investment decisions you make with your IRA account will ultimately determine its growth over time. Higher-performing investments like stocks typically offer greater potential return but carry greater risk than safer assets like bonds and CDs.
If you’re self-employed or own a small business, an SEP IRA could provide up to 25% of your earned income to be saved tax deferred. Married couples may contribute separately or one working spouse can fund a spousal IRA on behalf of their nonworking partner.
Traditional IRA accounts come with certain restrictions, including an age restriction that dictates withdrawals must begin by age 59 1/2 or face a 10% penalty. Therefore, it may make sense to split traditional IRAs while their owner is alive so each beneficiary can use his or her own life expectancy to calculate withdrawals accordingly.
If you are the spouse of someone who has passed, their Traditional, SEP or SIMPLE IRA may be transferred over into your own account at any time – this allows all your assets to remain under one firm while also helping avoid paying multiple fees that could eat into investment returns over time.
Non-spouse beneficiaries of inherited IRAs must adhere to required minimum distribution rules, with calculations determined by life expectancy tables from IRS Publication 590-B in order to calculate their annual RMDs.
One way for an IRA owner to address this problem is to divide her IRA before her death and split them into individual accounts, after the September 30 beneficiary designation date but before year-end. This would prevent spouses being designated co-beneficiaries. Otherwise, each beneficiary would have to follow rules regarding RMD calculations independently.
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