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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 are a popular way to save for retirement in a tax-advantaged account—even if you already have a 401(k) or other workplace account. With two different choices—Roth or Traditional—IRAs provide you more investment options and opportunity to add to your savings for the future.
Each type of IRA 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 a certain age4, 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 must have earned income to make contributions.
Some or all contributions may be tax deductible. It depends on your modified adjusted gross income, tax filing status and if your spouse participated in a workplace plan.
Income tax on earnings is deferred until you withdraw them.1
"Special purpose" withdrawals allowed under specific conditions (examples: first home, higher education) are penalty free, but you may owe tax on earnings and deductible contributions.
At age 59½, you can make penalty-free withdrawals.
You must take minimum distributions at a certain age4 annually to avoid a 50% penalty on the amount you were required to withdraw.
You must have earned income below the annual limits. If your income is within the "phase-out" range, you may be able to make partial contributions.
Contributions are not tax deductible.
Earnings are tax-free if the account is at least five years old and you are at least age 59½.
"Special purpose" penalty-free withdrawals are allowed under specific conditions (examples: first home, higher education), but you may owe tax on earnings.
You are not required to take money out at any age. Plus, you can contribute as long as you earn income.
The amount you can contribute to all of your Traditional and Roth IRAs combined is 100% of your taxable compensation,5 up to the maximums listed below.
You can choose to have both a Traditional and Roth IRA, but remember, the IRS looks at combined total contributions for all IRAs, including those you hold at other companies.
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.
4The SECURE Act, effective January 1, 2020, changed the age at which RMDs begin.
If you were born before 7/1/1949, you must begin RMDs at age 70½.
If you were born on or after 7/1/1949, you must begin RMDs at age 72.
5Exception for Married Filing Jointly: An employed spouse may contribute to a separate IRA on behalf of a spouse who has little or no income. The amount of the couple’s combined contributions can’t be more than the taxable compensation reported on their joint return. For more information, refer to Spousal IRA sections in IRA Publication 590-A.
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.
Please consult your tax advisor for more detailed information regarding the Roth IRA or for advice regarding your individual situation.
Taxes are deferred until withdrawal if the requirements are met. A 10% penalty may be imposed for withdrawal prior to reaching age 59½.
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.