Following is another in a series of columns on new rules governing Individual Retirement Accounts:
Can I have more than one IRA?
Yes. Theoretically there is no limit to the number of different accounts you can have, as long as the total amount deposited in all accounts doesn't exceed the annual limit.
As a practical matter, however, you would probably want to limit the number of accounts to perhaps two or three.
Some sponsors--but not all--apply a minimum on the amount of money needed to open an IRA. And some sponsors--but not all--have an annual management fee for each account, which would make it uneconomical to open a very small account.
There isn't much paperwork involved in setting up most IRAs, but multiply it by a large number of accounts and you could get involved in more work than the diversification is worth.
Perhaps most important: You can cover a pretty good spectrum of investments with just a few accounts. Later on in this series we'll take a look at the various investment media available for IRA accounts.
Is my investment locked in?
No, you can move the money from one account to another, subject only to some minor restrictions.
You can withdraw the money from an IRA and then invest it in another account once a year. To avoid the penalty on premature withdrawals, all funds withdrawn must be redeposited into another IRA within 60 days.
That once-a-year limitation applies to each individual account. That is, if you have three separate IRAs, you can make a transfer once each year from each account.
There is a major exception to this limitation in moves. If the transfer is accomplished between the trustees of the two IRA accounts without going through your hands, then there is no limitation.
So if you simply instruct the sponsor of the new (receiving) IRA to obtain the funds from the sponsor of the old IRA for deposit to your account, you can make as many moves as you want as often as you want.
What if I work after 59 1/2?
The age 59 1/2 restriction applies to withdrawals; that is, except in the event of disability or death a substantial penalty is imposed for withdrawal of funds from an IRA before you reach that minimum age.
But if you continue working, you can continue to deposit money into your IRA--until you are 70 1/2 years old. At that point two rules take effect:
1. You must initiate a withdrawal program, as explained last week.
2. You may no longer deposit funds into an IRA or claim an adjustment to income on your tax return for such deposits.
What if I put in too much?
If you accidentally deposit more money in your IRA than authorized, you can withdraw the excess (plus any income attributable to that excess) any time before the due date of the tax return for the year of the excess deposit.
What happens if I die?
When you open an IRA account you will be asked to name a beneficiary to receive the funds in the event of your death.
As an alternative, you can name your estate as the beneficiary, then direct the disposition of the proceeds along with your other assets in your will.
How do I report the IRA on my tax return?
Form 1040 provides a line in the ''Adjustments to Income'' section for entering your total IRA deposits for the year.
Assuming you don't exceed the ceiling, the amount is added to any other adjustments you may have, and the total is then subtracted from your gross income.
There are no special forms or schedules required, and the entry I have just described is the only entry required on your tax return.
Can I withdraw all the money at once?
After reaching age 59 1/2 you can take the money any way you want. The choices include a lump sum, a regular periodic withdrawal program or self-directed withdrawals of varying amounts at irregular intervals, as you want it.
Or of course you can leave the funds in the account to continue earning tax-deferred income--until the mandatory withdrawal age of 70 1/2.