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American Century Investments® offers different IRA types designed to help investors like you save for a secure retirement. Find out the benefits of each and use our IRA calculators to decide which might be right for you.
IRAs were designed to help investors save for retirement while gaining tax and other benefits along the way. Whether you choose a Traditional IRA or a Roth IRA, you'll find each offers advantages before and after you retire. These benefits are the same if you choose one of our Brokerage IRAs.
Traditional IRAs work well for some investors because the contributions are generally tax deductible. Here are some reasons why investing in a Traditional IRA may make sense.
All or some of your contributions may be tax deductible on your income tax return. Tax-deductibility is based on your:
Learn more about the IRA tax deduction rules.
Generally, any earnings grow tax deferred and are taxed at your ordinary income tax rate at the time of withdrawal. You don't pay income tax on Traditional IRA earnings until you make withdrawals. Each withdrawal can contain tax-deferred earnings and tax-deductible contributions, both of which are taxed as ordinary income based on your tax bracket at the time of the withdrawal. This can be an added benefit if you are in a lower tax bracket when making withdrawals, which can be the case if you are retired.
The primary purpose of a Traditional IRA is investing for retirement, but there are ways you can use the money earlier. For example, the IRS allows "special purpose" withdrawals under specific conditions, such as buying a first home or paying for higher education. Although these withdrawals are penalty free, any earnings and tax-deductible contributions will be taxed as ordinary income at your current tax rate.
Roth IRA contributions, are never tax deductible.1,2 But, there are other benefits, both before and after retirement, that may make this the right IRA for you.
This may be the greatest benefit. If the account is at least five years old and you are at least age 59½, you may withdraw your earnings tax free and penalty free at any time. You may also withdraw contributions tax free and penalty free at any time.1
As with the Traditional IRA, you are allowed to take the same special purpose withdrawals from a Roth IRA under specific conditions.
You are not required to take money out of your Roth IRA at any age. With a traditional IRA, the IRS requires you to take a minimum distribution from your IRA each year beginning at age 70½, or you will owe a 50% penalty tax on the amount you did not take. You also can contribute to a Roth IRA as long as you have earned income.
The beneficiaries of your Roth IRA will not have to pay income tax on the assets in your account if it was open for at least five years.1,2
You may be able to deduct some or all of your contributions, including catch-up contributions, depending on your income, filing status and participation in an employer-sponsored retirement plan.
You must be under the age of 70½ on December 31. You or your spouse (if one of you are not working and you file a joint return) must have earned income during the year. No Modified Adjusted Gross Income (MAGI)3 limit for contributions; MAGI limits do apply to tax deductibility.
A 10% early withdrawal penalty tax may apply for withdrawals prior to age 59½. Withdrawals for special purposes may be permitted prior to retirement.
Minimum distributions are required to begin at age 70½.
Deductibility depends on MAGI3 and whether you or your spouse is covered by an employer-sponsored retirement plan. You must figure your deduction and your spouse's deduction separately. The deduction for contributions to Traditional IRAs phases out over the following MAGI levels. (See lists below.)
You may withdraw contributions tax free and penalty free at any time.1 There is no required minimum distribution at age 70½. You may contribute to a Roth IRA as long as you want, provided you have earned income. The beneficiaries of your Roth IRA will not have to pay income tax on the assets in your account if it was open for at least five years.1,2
You must have earned income. Modified Adjusted Gross Income (MAGI)3 Limits: $186,000 for couples, $118,000 for singles for 2017; $189,000 for couples, $120,000 for singles for 2018. Eligibility phases out at $196,000 for couples, $133,000 for singles for 2017; $199,000 for couples, $135,000 for singles for 2018.
Tax-free, penalty-free withdrawals are allowed if you are at least age 59½ and the account is at least five years old.1 Withdrawals for special purposes may be permitted prior to retirement.
Minimum distributions are not required at any age. However, if your estate includes Roth IRA assets after your death, your beneficiaries will have to take required minimum distributions.
Deductions on contributions are not available.
We can help you open your IRA.
1 State and local taxes may apply.
2 Estate tax may apply.
3 Modified Adjusted Gross Income (MAGI) is your Adjusted Gross Income (AGI) with standard deductions included.
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.
This information is for educational purposes only and is not intended as a personalized recommendation or fiduciary advice. There are different options available for your retirement plan investments. You should consider all options before making a decision. Our representatives can help you evaluate all of your distribution options.