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Roth IRA

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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- and penalty-free after age 59½ and once the account has been open for five years. With a Roth IRA, there are no contribution age restrictions, nor do you have to take Required Minimum Distributions (RMDs).

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 open a Roth IRA, so not everyone will be eligible for this type of retirement account.

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See if you're eligible to open a Roth IRA and how much you can contribute based on your earned income.

See if converting to a Roth IRA is right for you

Compare estimated values of keeping a Traditional IRA vs. converting it to a Roth, and see estimated taxes.

Compare different retirement accounts and learn their tax benefits and rules with our Roth IRA vs. Traditional IRA infographic.


With a Roth IRA, you've already paid taxes on the money you invest in your account, so your contributions are considered "post-tax." Any investment gains on those contributions grow tax-free, and withdrawals are tax- 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 70½. 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
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- and penalty-free if you've satisfied the five-year holding period and you're over age 59½. 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 888-298-6558 for assistance, or consult a tax professional for more details.
Under current tax law, because you paid the income taxes up front 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.

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