Frequently Asked Questions (FAQs)

What do I do if I have contributed too much to my IRA for the year?

You have some options available if you have contributed more than the maximum allowed for the tax year. These include applying the amount to the following tax year or removing the excess amount. You may also be able to recharacterize a Roth IRA. We recommend that you work with your tax advisor to determine which option is best for you because they can involve tax penalties. For more specific details, please see information about Excess Contributions in the Disclosure Statement and Custodial Agreement booklet, or visit www.irs.gov.

Which is better, contributing to my 401(k) or to an IRA?

It's hard to beat a 401(k) that includes matching contributions from your employer. And a 401(k) often includes other attractive features, such as the ability to borrow from the plan and the convenience of having your contributions directly invested from your paycheck. But the Roth IRA also has attractive features, such as tax-free earnings, no required distributions at age 70½ and penalty-free withdrawals for certain qualified expenses. Plus all IRAs provide many more investment choices than are offered by 401(k) plans. If you can't invest in both, carefully weigh the pros and cons of each before making your choice.

Can I be penalized for withdrawing too much money from my IRA?

No. Recent legislation repealed the "excess-distribution" penalties on amounts above $160,000.

Can I contribute to a Traditional IRA and a Roth IRA in the same tax year?

Yes, as long as your total annual IRA contributions do not exceed contribution limits. To learn more, please visit: Traditional IRA and Roth IRA Eligibility and Contribution Limits

Should I convert my traditional IRA over to a Roth IRA?

That's a difficult question, and one you should review thoroughly with your tax advisor. The answer depends on several things, including how far away you are from retiring, how much untaxed earnings and contributions you have in your traditional IRA and how soon you want to start withdrawing money from your IRA. If you convert money over to a Roth IRA, there is no 10% penalty, but you owe taxes on any contributions and earnings not previously taxed. However, there are no minimum distribution requirements for Roth IRAs, and you may contribute to a Roth IRA for as long as you want, provided you have compensation. For conversions that occur in 1999 and beyond, all taxes are due in the year the conversion is made. American Century IRA specialists can offer some assistance with this decision, and they can make the conversion process easy for you.

What about rolling over my 401(k) investments to a Roth IRA?

Again, this is a complex issue that you should review with your tax advisor. This conversion offers tax advantages for some investors, and American Century's Rollover Specialists can assist you in making this a seamless transaction.

Will withdrawals from a Roth IRA be subject to state and local taxes?

The answer is not clear. So far, only California has issued a position; the other states have not.

How does the penalty-free withdrawal work if I'm purchasing a first home for my parent or child?

If you are the buyer, to qualify for a penalty-free withdrawal, you cannot have owned a home for the previous two years.

I don't have any earnings. Can I still contribute to a Coverdell Education Savings Account?

Yes. Unlike retirement IRAs, contributions can be made into a Coverdell Education Savings Account from any income source.

What about rolling over my 401(k) investments to a Rollover IRA?

If you leave your current employer or retire, you might consider a 401(k) Rollover. Our Rollover Specialists offer personalized guidance and assistance in helping you with this transition, and we offer a Rollover Service Guarantee.

Can I roll my company stock over to American Century Investments?

Depending on your retirement plan, you may be able to:

  • You can roll over your company stock directly to an American Century® Brokerage Rollover IRA without liquidating the assets; or
  • Instruct your employer to sell your stock and directly roll over the proceeds into an American Century Investments Rollover IRA; or
  • You can receive the stock certificates. You may then roll over the stock to an American Century Brokerage Rollover IRA or sell the stock and roll over the proceeds. You will not incur any income tax provided the rollover is completed within 60 days. You are not allowed to keep the stock and contribute the equivalent value in cash to a Rollover IRA.

Can I invest in individual securities or non-American Century Investments mutual funds in my Rollover IRA?

An American Century® Brokerage Rollover IRA provides a broad range of investments, including a full range of listed and over-the-counter stocks and bonds and more than 9,000 no-load and load mutual funds from more than 500 fund families.

Review our Fees & Commissions for more information.

IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
Brokerage Services are provided by American Century Brokerage, a division of American Century Investment Services, Inc., registered broker/dealer, member FINRA, SIPC.