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Roth IRA

With a Roth IRA account, you won't pay taxes as your money potentially grows, and you can make tax-free withdrawals during retirement.

What is a Roth IRA?

A Roth IRA is an Individual Retirement Account to which you contribute after-tax dollars. While there are no current-year tax benefits, your contributions and earnings can grow tax-free, and you can withdraw them tax-free and penalty free after age 59½ and once the account has been open for five years. 

Why consider a Roth IRA?

A Roth IRA can be a good savings option for those who expect to be in a higher tax bracket in the future, making tax-free withdrawals even more advantageous. However, there are income limitations to opening a Roth IRA, so not everyone will be eligible for this type of retirement account.

Learn more about Roth vs. Traditional IRAs and which may be right for you.

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What benefits do Roth IRAs provide for your retirement?

  • No contribution age restrictions

    You can contribute at any age as long as you have a qualifying earned income.

  • Earnings grow tax-free

    Contributions and potential investment gains accumulate tax-free.

  • No income taxes for inherited Roth IRAs

    If you pass your Roth IRA onto your heirs, their withdrawals will also be income tax-free. 

  • Qualified tax-free withdrawals

    Withdrawals can be taken out tax-free and penalty free, provided you're age 59½ or older and you have met the minimum account holding period (currently five years).

  • No mandatory withdrawals (unlike a Traditional IRA)

    There is no need to take required minimum distributions with a Roth IRA. 

Am I eligible to open a Roth IRA?

Your eligibility to open a Roth IRA and how much you can contribute is determined by your Modified Adjusted Gross Income (MAGI). If you are a single or joint filer, your maximum contribution starts to reduce at $125,000 and $198,000 for tax year 2021 and $129,000 and $204,000 for tax year 2022, respectively. See which IRAs you're eligible for with our Roth vs. Traditional IRA Calculator

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    Fees and commissions

    Regardless of your account balance or how often you trade, you can open an account with a $0 minimum deposit plus get $0 online listed equity trade commissions.2 

1. Schwab Satisfaction Guarantee: If you are not completely satisfied for any reason, at your request, Charles Schwab & Co., Inc. ("Schwab"), Charles Schwab Bank, SSB ("Schwab Bank"), or another Schwab affiliate, as applicable, will refund any eligible fee related to your concern. Refund requests must be received within 90 days of the date the fee was charged. Two kinds of "Fees" are eligible for this guarantee: (1) "Program Fees" for the Schwab Wealth Advisory ("SWA"), Schwab Managed Portfolios™ ("SMP"), Schwab Intelligent Portfolios Premium® ("SIP Premium"), and Managed Account Connection® ("Connection") investment advisory services sponsored by Schwab (together, the "Participating Services"); and (2) commissions and fees listed in the Charles Schwab Pricing Guide for Individual Investors or the Charles Schwab Bank Pricing Guide.

 

For more information about Program Fees, please see the disclosure brochure for the Participating Service, made available at enrollment or any time at your request. The Connection service includes only accounts managed by Charles Schwab Investment Management, Inc., an affiliate of Schwab. The guarantee does not cover Program Fees for accounts managed by investment advisors who are not affiliated with Schwab or managed by Schwab-affiliated advisors outside of the SWA, SMP, SIP Premium, and Connection services. The guarantee is only available to current clients. Refunds will only be applied to the account charged and will be credited within approximately four weeks of a valid request. No other charges or expenses and no market losses will be refunded. Other restrictions may apply. Schwab reserves the right to change or terminate the guarantee at any time. 

 

2. Standard online $0 commission does not apply to over-the-counter (OTC) equities, transaction-fee mutual funds, futures, fixed-income investments, or trades placed directly on a foreign exchange or in the Canadian market. Options trades will be subject to the standard $0.65 per-contract fee. Service charges apply for trades placed through a broker ($25) or by automated phone ($5). Exchange process, ADR, and Stock Borrow fees still apply. See the Charles Schwab Pricing Guide for Individual Investors for full fee and commission schedules.  

 

This tax information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends that you consult with a qualified tax advisor, CPA, financial planner, or investment manager. Depending on the type of account you have, there are different rules for withdrawals, penalties, and distributions. Please understand these before opening your account.
 

Ready to open a Roth IRA?

The easiest way to open a Schwab Roth IRA account is online. 

The online account application process only takes about 10 minutes. Key steps include:

  • Choosing the type of IRA account
  • Providing your personal, employment, and financial information
  • Selecting specific account features
  • Creating login credentials and providing contact information for your account
  • Verifying your identity
  • Indicating how you'll fund the account
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Roth IRA Conversions

A Roth IRA conversion lets you move some or all of your retirement savings from a Traditional IRA, SEP IRA, SIMPLE IRA, or 401(k) into a Roth IRA. There are no age limits to convert, and as of January 1, 2010, the IRS eliminated Roth IRA conversion income restrictions, allowing you to start taking advantage of unique Roth IRA benefits even if your current income disqualifies you from making additional contributions.3

See if a Roth IRA conversion is right for you. 

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Common questions

With a Roth IRA, you've already paid taxes on the money you contribute in your account, so your contributions are considered "post tax." Any investment gains on those contributions grow tax-free, and withdrawals are tax-free and penalty free if you're at least 59½ years old and have had your account for at least five years.

 

Unlike 401(k)s and Traditional IRAs, Roth IRAs don't require you to take minimum distributions starting at age 72. And similar to a Traditional IRA, you can avoid the early withdrawal penalty for situations such as:

  • Higher education expenses
  • First-time home purchases
  • Medical expenses
  • Disability claims
  • Health insurance
  • Substantially equal periodic payments
  • Involuntary distribution due to an IRS tax levy
  • Reservist distributions

Schwab will send you your account number as soon as your application is completed and approved. You can use your account number to log in and manage your account. 

With this account, your contributions aren't tax deductible—but your earnings grow tax-free, and withdrawals can be made tax-free after five years, provided you are age 59½ or older. 

 

You may be eligible for tax-free withdrawals before age 59½:

  • In case of death or disability
  • To pay up to $10,000 toward the purchase of a first home
  • To pay up to $5,000 toward birth or adoption expenses

While there are no current-year tax benefits, you can contribute to a Roth IRA whatever your age with earned income, and you won't need to take Required Minimum Distributions based on your age.

Choose from stocks, bonds, ETFs, mutual funds, CDs, and more. Schwab also offers professional portfolio management solutions that can make investing even easier. As a Schwab client, you can speak with a Schwab investment professional who can help you decide which investments are right for you. Just give us a call at 866-855-5635. We're here and happy to help.

You can contribute $6,000 for the tax year 2021 and $6,000 for the tax year 2022 ($7,000 for tax year 2021 and $7,000 for tax year 2022 if you are at least age 50) or up to 100% of earned income, whichever is less. Income limits apply

There are income limitations to opening a Roth IRA account. If you file as a single person and your Modified Adjusted Gross Income (MAGI) is above $140,000 for tax year 2021 and $144,000 for tax year 2022, or if you file jointly and you have a combined MAGI above $208,000 for tax year 2021 and $214,000 for tax year 2022, you may not be eligible to start a Roth IRA. See the Roth IRA contribution limits for more information.

There are two different five-year rules: one for the money you convert and one for the earnings you make on your investments.

 

Converted funds. Each conversion amount is subject to a five-year holding period, which begins on January 1 of the year in which you made the conversion. If you do a series of conversions over several years, you'll have separate holding periods for each.

 

If you withdraw funds before the end of the five-year period, you could be subject to a 10% early withdrawal penalty (you may be exempt if you turn 59½ before taking the withdrawal, even if you haven't held the account for the full five years). Once you've satisfied the holding period, you can make withdrawals of converted funds without penalty, even if you're under age 59½. 

 

Earnings. The five-year rule for earnings also begins on January 1 of the year in which you open and contribute (or convert) to your first Roth IRA. However, it doesn't reset each time you make a contribution or open another Roth account. 

 

Withdrawals of any earnings from your Roth IRA investments are tax-free and penalty free if you've satisfied the five-year holding period and you're age 59½ or older. If you've met the five-year holding period but you're not yet 59½ years old, you'll be subject to a 10% early withdrawal penalty. 

 

Unlike conversions and earnings, contributions to a Roth IRA are not subject to any holding period, so in most cases, you can withdraw them without paying taxes or penalties at any time.

In any year in which your income exceeds the contribution limit, you won't be able to contribute to your Roth IRA. However, if your income dips in a subsequent year and returns to the acceptable income range, you can resume your Roth contributions. Keep in mind that as of 2010, the IRS removed the income limits for conversion, meaning that you can convert to a Roth IRA regardless of your Modified Adjusted Gross Income (MAGI) or your tax-filing status. You can also combine two Roth IRAs—call a Schwab investment professional at 866-855-5635 for assistance, or consult a tax professional for more details.

A key consideration is whether it makes more financial sense to take advantage of immediate tax benefits or enjoy tax-free withdrawals in retirement. With a Traditional IRA, you may get immediate tax benefits, but you'll have to pay ordinary income tax on your contributions and earnings when you take money out in retirement. With a Roth IRA, there are no immediate tax benefits, but contributions and earnings grow tax-free. All withdrawals can be taken out tax-free and penalty free, provided you're age 59½ or older and you have met the minimum account holding period (currently five years).

 

Compare a Roth vs. Traditional IRA

Under current tax law, because you paid the income taxes upfront on your contributions or paid them when you converted, your heirs will not incur any further income tax on the inherited account. The Roth IRA balance is included in your taxable estate for tax purposes, however, just as a Traditional IRA would be.

Account opening and funding questions

Account opening and funding questions

Consolidating all your accounts at Schwab may help you better manage your finances. We can help you every step of the way in bringing your assets over in a tax-efficient manner. Learn how to transfer.

  • Social security number(s)
  • Driver's license
  • Employer's name and address (if applicable)
  • Statement information for any assets or cash you'd like to transfer
  • Beneficiary information

The easiest way to open a Schwab IRA account is online. You can also get help opening an account by calling us at 866-855-5635 or visiting one of 300 local branches.

The online account application process only takes about 10 minutes. Key steps include:

  • Choosing the type of IRA account
  • Providing your personal, employment, and financial information
  • Selecting specific account features
  • Creating login credentials and providing contact information for your account
  • Verifying your identity
  • Indicating how you'll fund the account

There are multiple ways to fund your new Schwab account:

  • Electronic funds transfer (EFT) with Schwab MoneyLink® to transfer funds or assets from an external account. You may also continually fund your account by setting up auto deposit to transfer funds from your checking account.
  • Wire transfer request from another financial institution.
  • Check deposit by mail or in person at your local Schwab branch.

Full funding instructions and access to online fund transfer tools will be provided after your account is opened. 

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