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Retirement & Planning
 

Understanding IRAs

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Grow your retirement nest egg with an IRA

What is an IRA?

An Individual Retirement Account (IRA) is an account that allows you to save for your retirement while taking advantage of tax benefits.

There are many different types of IRAs, and each has different requirements and consequences, depending on your personal life circumstances and retirement goals. We’ll help you understand each Individual Retirement Account and their tax advantages, so you can determine which one may be right for you.

Need IRA help? Call anytime.

Open a Schwab IRA today. Apply Now

Compare Roth vs. Traditional IRAs

  • View account features side by side.
  • See whether a Roth or Traditional IRA may be right for you and how much you can contribute.
 

Take money out of an IRA

  • See why age matters for withdrawals.
  • Avoid early withdrawal penalties.
  • Learn about required distributions if you’re age 70½ or older. 
 

Roll over an old 401(k) to an IRA

  • Understand your rollover choices.
  • See the pros and cons of rolling over to an IRA.
  • Learn the steps of the IRA rollover process.
  • At a glance: Types of IRAs

    • May have more investment choices and lower fees than a 401(k).
    • No taxes or withdrawal penalties at time of transfer.
    • Funds can continue to grow tax-advantaged.
    • Contributions may be tax-deductible. See contribution limits.
    • Withdrawals are taxed as current income during retirement.
    • No income limitations.
    • Contributions are not tax-deductible. See contribution limits.
    • Withdrawals are generally tax- and penalty-free after 5 years and after age 59½.
    • Income eligibility limitations.
    • For children under age 18 who have earned income.
    • Can be a Traditional or Roth IRA.
    • Funds can be used to pay for college.
    • For those who inherit a non-spousal Traditional or Roth IRA.
    • Tax-deductible contributions or IRA conversions aren’t allowed.
    • Annual distributions are required.

Nonqualified withdrawals from an IRA are subject to a 10% federal tax penalty.

Small Business Retirement? Narrow down your choices.

Owner-only business with no employees:

Get details about Individual 401(k) plans and SEP-IRAs.

Businesses with a few employees:

Get details about SEP-IRAs, SIMPLE IRAs, and Personal Defined Benefit Plans.

Businesses with many employees:

Get details about SIMPLE IRAs and 401(k)s.

See all small business retirement plans.


IRA FAQs

For a Traditional IRA, you can contribute up to $5,500 for tax year 2016 and $5,500 for tax year 2017, or up to 100% of earned income, whichever is less. Individuals age 50 and over can also make an additional $1,000 catch-up contribution from earned income for tax years 2016 and 2017. Roth IRAs have the same contribution limits but also have income eligibility requirements.

Not all of your IRA contributions may be eligible for a current-year tax deduction. See Traditional IRA contribution limits and Roth IRA contribution limits.
You can withdraw the excess contribution amount, but you will be charged a 6% penalty each year that money remains in your account. When you withdraw your funds, you'll need to file IRS Form 5329.

Note: Depending on your age, you could be taxed twice on your withdrawal. To determine the best solution for your situation, contact your tax advisor.
You can remove the extra funds after the tax-filing deadline (including extensions), but you will be charged a 6% penalty.

Note: The IRS has yet to provide a definitive answer on whether earnings from these funds must also be removed after the tax-filing deadline. Check with a tax advisor to determine the best solution for your individual situation.
You can't take a loan from your IRA. However, you may be eligible to take a premature distribution from a Traditional IRA once in a 12-month period without penalty, if you replace the funds within 60 days.

You can withdraw from a Roth IRA regardless of your age. If you don't pay back the distribution within 60 days, you may be subject to a 10% early withdrawal penalty, and it's possible that you may need to pay taxes on the earnings that are distributed. See IRS Form 5329 for guidance in filing, and consult a tax advisor about your specific situation.
Before you reach age 59½, you are subject to a 10% penalty, in addition to federal and state taxes, on Traditional IRA distributions and earnings withdrawals from Roth IRAs. Roth IRA contributions can be withdrawn at any time without penalty. If IRS requirements are met, distributions from Traditional IRAs and from Roth IRA earnings are penalty-free under certain circumstances.


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