Can you have multiple retirement accounts? If you are someone who works freelance in addition to your day job, or someone having two or even more jobs, chances are you are thinking of opening multiple retirement accounts to maximize your retirement savings. You might think of opening a solo 401k retirement account in addition to your employer-sponsored 401k account.

This guide will dig deeper into maintaining multiple retirement accounts, and find out the nuances of maintaining multiple retirement accounts.

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Can you have Multiple Retirement Accounts?

Yes, you can have multiple retirement accounts. If you have a day job and a side business, or multiple jobs, where the jobs are not legally overlapping, or are unrelated, then you can maintain multiple retirement accounts like solo 401k, 401k, SEP IRA, 403b, and more.

This helps you stash more cash in your retirement plan, in addition to enjoying tax benefits.

Read 10 best solo 401k providers

Multiple retirement accounts-Contributions allowed

Your cumulative individual contributions (elective deferrals) in all your retirement accounts, cannot exceed the lesser of- deferral limits set by the plan, 100% of your eligible compensation under the plan, or the maximum contribution limit as set annually by the IRS. See 2022 limits or 2023 limits.
Employers with whom you have 401k and solo 401k plans should be legally unrelated to each other. Please note that you can be an employer to yourself also.
Employers can contribute the maximum limit allowed in each unrelated retirement plan.

Let us discuss some scenarios.

You have two separate jobs (age <50 years)

In this scenario, having two separate jobs means both of your employers can sponsor individual 401k plans for you. However, keep in mind that the total elective deferrals (employee contributions) you can make across both plans cannot exceed the maximum limit of $22,500 for 2023.

You have the flexibility to distribute the deferrals between the plans according to your convenience. For instance, you can contribute $4,000 in one plan and $18,500 in the other, or you may choose to have $18,500 in the first plan and $4,000 in the second.

However, you will also be entitled to employer contributions in both the plans that will increase the retirement savings.

You have a day job and a separate freelance job (age < 50 years)

In this scenario, you can have an employer-sponsored 401k plan and a solo 401k plan (or an IRA like SEP IRA). Again, keep in mind that the total elective deferrals (employee contributions) you can make across both plans cannot exceed the maximum limit of $22,500 for 2023.

You have the flexibility to distribute the deferrals between the plans according to your convenience. For instance, you can contribute $4,000 in the employer-sponsored 401k and $18,500 in the solo 401k, or you may choose to have $18,500 in the 401k and $4,000 in the solo 401k.

However, you will also be entitled to employer contributions in both the plans that will increase the retirement savings.

Multiple Retirement Accounts-Pros and Cons

Pros

Different retirement accounts offer different contribution limits, investment options, and tax advantages. Having multiple retirement accounts help you to maximize and diversify your retirement savings.

Cons

Maintaining different retirement accounts requires more management to keep track of each account’s contributions, investment choices, and performance to ensure your overall retirement strategy remains cohesive and aligned with your financial goals.
One should be mindful of the contribution limits. Overcontributing can lead to penalties (like double taxation) from the IRS.

Conclusion

In conclusion, the option of having multiple retirement accounts can be a powerful strategy for securing a more robust retirement savings portfolio. By diversifying your investments across various accounts, you gain greater flexibility and the potential for increased returns.

However, it is essential to approach it with careful consideration. Always be mindful of the contribution limits set by the IRS, as overcontributions can result in penalties and tax implications.

Furthermore, managing multiple retirement accounts can be more cumbersome. Keeping track of each account’s performance and ensuring a balanced investment strategy requires diligence and organization.

Before making any decisions, it is advisable to seek guidance from a trusted financial planner. A professional can help you assess your financial goals, evaluate the most suitable retirement account options, and design an investment plan tailored to your unique needs.

In the end, the decision to have multiple retirement accounts should align with your long-term financial objectives and risk tolerance. With careful planning and expert advice, you can optimize your retirement savings and work towards a secure and prosperous future.