What is an IRA?
An Individual Retirement Account (IRA) is an account that promotes saving for retirement by providing various tax advantages.
Types of Accounts
Purpose of account>Earmarked for long term growth and retirement savings>Investing>Bank account used for everyday spending>
Fees>No fees to open and maintain your account>No fees to open and maintain your account>No fees to open and maintain your account>
Taxes>Specific tax benefits, depending on the IRA you choose>More flexibility, based on what you sell. Must typically claim any capital gains as taxable income>No taxes incurred>
Contribution limits>Has contribution limits, and certain eligibility requirements>No restrictions on the dollar amount you can invest>No restrictions on the dollar amount you can contribute>
Withdrawal rules>Depending on IRA you choose, there are penalties if you take money out before retirement>
Traditional IRAs, Roth IRAs, and Rollover IRAs are the 3 most common types of individual retirement accounts. Variations of common IRA types include Inherited IRAs and Custodial IRAs. There are 2 more types of IRAs, the SEP IRA and SIMPLE IRA, which are intended for self-employed individuals and small businesses. Each IRA has its own characteristics to evaluate when setting your retirement savings goals.
- Contributions may be tax deductible. See Traditional IRA limits.
- Withdrawals of pre-tax contributions and earnings are taxed as current income during retirement.
- No income limitations.
- Contributions are not tax-deductible. See Roth IRA contribution limits.
- Withdrawals are generally tax- and penalty-free after 5 years and after age 59½.
- Income eligibility limitations.
- May have more choices and lower fees than a 401(k).
- No taxes or withdrawal penalties at time of transfer.
- Funds can continue to grow tax-advantaged.
- For those who inherit a Traditional or Roth IRA.
- Tax-deductible contributions or IRA conversions aren't allowed.
- Annual distributions or liquidation of the account within a period certain is required.
- For children under age 18 who have earned income.
- Can be a Traditional or Roth IRA.
- Funds can be used to pay for college.
Nonqualified withdrawals from an IRA are subject to a 10% federal tax penalty.
When estimating how much income you'll need in retirement, you may discover your employer-sponsored savings plan isn't able to achieve your goal on its own. If your 401(k) is not able to grow enough to meet your savings needs, contributing to an IRA can help make up the difference. Learn why an IRA may make sense even when you've got a 401(k).
Learn more about IRAs
Rollover a prior 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.
- How much can I contribute to my IRA each year?
- I contributed too much money to my Traditional IRA. What can I do if the tax-year deadline has passed?
- I contributed too much money to the Roth IRA. What can I do if the tax-year deadline has passed?
- Can I borrow from my IRA? What are the rules?
- Can I make early withdrawals from my IRA?
- What is my Modified Adjusted Gross Income?
- How do I invest funds within my account?
- What is an IRA Certificate of Deposit (CD)?
- Will Schwab allow me to invest my IRA funds in CDs?
- Where can I find IRA CD interest rates?
Learn More about Schwab IRA accounts
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