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How to Open a Roth IRA Account for Retirement Savings

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If you’re dreaming about tax-free income in retirement, a Roth IRA is a popular savings option. With a Roth IRA, you can enjoy tax-free withdrawals and get the benefits of compounded earnings on contributions. Here’s how to get started opening a Roth IRA account.

How Do I Open a Roth IRA Account?

Opening a Roth IRA can be as simple as opening a bank account. You can begin by visiting the website of the financial services firm of your choice and filling out an online application. You’ll be asked for information such as your address, date of birth and Social Security number.

You’ll then be able to fund your new Roth IRA with a transfer from your bank account. And you can set up automatic transfers to make regular contributions. You’ll also need to choose your investments from a list of options that allow you to consider your risk tolerance and how much time you have until retirement.

Still wondering if a Roth IRA is for you? Let’s review some of the basics about Roth IRAs.

Why Roth IRAs Are Popular

Roth IRAs allow individuals and the self-employed to save for retirement outside an employer-based retirement plan. And if you have a 401(k) or other workplace account, it offers an additional way to save.

Both traditional and Roth IRAs offer tax breaks. Contributions to a traditional IRA are generally tax deductible, but withdrawals in retirement are taxable. Roth IRA contributions are not tax deductible, but withdrawals are tax-free and penalty-free if you are age 59½ or older and have held the account for at least five years. 

Compare Traditional and Roth IRAs

For those a few decades from retirement, a Roth IRA may be a more attractive option than a traditional IRA for retirement income. With Roth IRAs, you can wait longer to withdraw money and you won’t pay taxes on those withdrawals. And it means your Roth IRA has the opportunity to increase in value beyond a traditional IRA over an extended period.

Roth IRAs and Required Minimum Distributions (RMDs)

Unlike traditional IRAs, Roth IRAs generally do not include Required Minimum Distributions by age 72. There is no maximum age on contributing to a Roth IRA if you have earned income and meet other requirements.

Your beneficiaries may also benefit from your smart planning. They may not have to pay income tax on the money when they withdraw it if your Roth IRA was open for at least five years before you die.

Who Is Eligible for a Roth IRA?

The IRS sets eligibility requirements and contribution limits each year for IRAs. Many Americans meet the income limits for opening a Roth IRA. To qualify, individuals must have earned income or one member of a married couple filing jointly must have earned income.

In 2022, individual investors under age 50 can contribute up to $6,000 annually in a traditional or Roth IRA, but the limits are adjusted upward periodically. Those age 50 and over can put in an additional $1,000 each year, commonly called a “catch-up contribution.”

Getting Started With a Roth IRA

A Roth IRA is a way to increase your retirement savings in addition to or in place of an employer-based retirement plan. Opening a Roth IRA can be easy. If a Roth IRA is right for you, we can help you get started.

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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.

You could lose money by investing in a mutual fund, even if through your employer's plan or an IRA. An investment in a mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

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.