What is a Rollover IRA, and how does it work?
A Rollover IRA is an individual retirement account for investors who change jobs or retire and receive an eligible distribution from their employer's qualified retirement plan, such as a 401(k), 403(b), 457, money purchase pension or profit-sharing plan. The account protects the tax-deferred status, with no early withdrawal penalties.
What Are the Benefits of Rollover IRAs?
Any earnings grow tax deferred and are taxed at your ordinary income tax rate at the time of withdrawal.
Take Control of Retirement Money
Move money from old retirement plans or other Rollover IRAs for more control over your investments.
Withdrawals Potentially Taxed at a Lower Rate
Retirees are often in a lower tax bracket when making withdrawals.
Multiple Uses Other Than Retirement
The IRS allows "special purpose" withdrawals under specific conditions, such as buying a first home or paying for higher education.
Who Is Eligible?
You may open a Rollover IRA if you have an eligible distribution from an employer-sponsored retirement plan due to a job change or retirement. Keep in mind certain distributions cannot be rolled over, such as required minimum distributions, loans and distributions of excess contributions (and related earnings).
How Much Can I Contribute?
There is no limit to how much you may roll over to your Rollover IRA, but you can't make annual IRA contributions to the account. Keeping the rollover money separate from contributions ensures you can to move the rollover funds to another Rollover IRA or an employer plan in the future.
If you don’t want to preserve this option, you can combine rollover assets and new contributions in the same account—which will become a Traditional IRA. By doing so, the combined assets are considered "commingled," and you may not be able to roll them over into a new employer’s plan.
What Are My Investment Options?
You can open a Rollover IRA in a mutual fund or in an exchange-traded fund (ETF) or other investment vehicle through our brokerage service.
Select from a variety of no-load mutual funds based on your risk tolerance and investment objectives.
You can open a Rollover IRA in a mutual fund or in an ETF or other investment vehicle through our brokerage service.
Choose from more than 10,000 mutual funds from other fund families, as well as ETFs, publicly traded stocks, bonds and more.
You may begin taking penalty-free withdrawals from a Rollover IRA at age 59½. However, taxes will apply to these withdrawals.
Withdrawals for special purposes may be permitted prior to retirement.
Just like a Traditional IRA, the IRS requires you to take money from a Rollover IRA when you reach a certain age. These withdrawals are called required minimum distributions (RMDs).
The SECURE Act 2.0, effective January 1, 2023, changed the age at which RMDs begin. Learn more by reviewing our RMD Guide.
Traditional IRA to Roth IRA Conversions
You may convert all or part of a Traditional IRA to a Roth IRA regardless of income limits.
While conversions are penalty free, the amount you convert that has not previously been taxed, including earnings, must be included as taxable income and could potentially move you into a higher tax bracket. Taxes will be due when you file your income tax return for the year in which you converted.
Once you convert from a Traditional IRA to a Roth IRA, your new IRA investment and any accumulated earnings will grow free of federal income taxes, provided you meet the conditions described in the Withdrawals section above.
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.
IRA investment earnings are not taxed. Depending on the type of IRA and certain other factors, these earnings, as well as the original contributions, may be taxed at your ordinary income tax rate upon withdrawal. A 10% penalty may be imposed for early withdrawal before age 59½.
Other Investment Costs
Funds held directly with American Century Investments: A $25 annual account maintenance fee is charged to investors whose total investments with us are less than $10,000 for each taxpayer identification number (for example, Social Security number).
American Century Brokerage: A $50 annual custodial fee is charged per account. This fee is waived for Platinum, Gold and Silver Priority Investors or if the balance of the account is over $10,000. See Fees and Commissions for more information.
For more information, see Understanding Our Account Maintenance Fee.
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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.
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.