An Individual Retirement Account (IRA) is a retirement savings vehicle with potential tax benefits. You can use an IRA as your sole retirement savings account or in conjunction with another retirement plan, such as a 401(k). There are two primary types of IRAs — traditional and Roth — each with distinct benefits and eligibility requirements. Rollover IRAs can help you maintain the tax benefits of your retirement savings plan when you leave a job or retire.
Anyone under age 70½ who earns income is eligible to contribute to a traditional IRA. Whether or not your contribution is tax deductible depends on your tax-filing status, modified adjusted gross income and retirement plan participation. When it’s time to take distributions from your traditional IRA, you’ll pay taxes on your earnings and deductible contributions. You are required to begin taking minimum distributions from a traditional IRA at age 70½.
Your ability to contribute to a Roth IRA depends on your income level. Contributions to a Roth IRA are made with after-tax money; therefore, withdrawals from the contribution amount are tax-free. Qualified distributions of earnings are also tax-free. You do not need to take required distributions from a Roth IRA, so you can continue to invest beyond age 70½.
A rollover IRA enables you to keep your money invested and maintain the tax benefits of your retirement plan when you leave a job or retire. Money in a Roth 401(k) or 403(b) can be rolled into a Roth IRA. Non-Roth accounts can be rolled over to a traditional IRA. Rollovers to Roth IRAs from non-Roth accounts are taxable because you have yet to pay taxes on that money. Once in a Roth, however, your earnings will be tax-free for qualified distributions.
Use the related links on this page to learn more about IRAs, and then speak with a financial professional to determine which type of account makes sense for you.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.