What is an IRA?

An Individual Retirement Account (IRA) is an account that promotes saving for retirement by providing various tax advantages.

Investing in an IRA can be a great way to supplement any employer-sponsored retirement plan you may have. IRAs can help you gain access to a potentially wider range of investment options to diversify beyond your employer-sponsored plan. There are several types of IRAs, each with unique requirements and consequences. When choosing an IRA, you’ll want to consider your personal circumstances and retirement savings goals.

Types of IRAs

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.

Traditional IRA	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. What is a traditional IRA?
Roth IRA	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. What is a Roth IRA?
Rollover IRA	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. What is a Rollover IRA?
Inherited IRA	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. What is an Inherited IRA?
Custodial IRA	For children under age 18 who have earned income. Can be a Traditional or Roth IRA. Funds can be used to pay for college. What is a Custodial IRA?

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

Why should I consider investing in an IRA?

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

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.

Roth vs. Traditional IRA

Roth vs. Traditional IRA calculator
Take money out of an IRA
See why age matters for withdrawals.

Avoid early withdrawal penalties.

Learn about Required Minimum Distributions (RMDs).

IRA Taxes on Withdrawals and Distributions

Traditional IRA Withdrawal Rules

Roth IRA Withdrawal Rules

IRA RMD Calculator
Rollover 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.

Account rollover options

Common questions

How much can I contribute to my IRA each year?

For a Traditional IRA, you can contribute up to $6,000 for the tax year 2020 and $6,000 for the tax year 2021, 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 2020 and 2021. 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.

I contributed too much money to my Traditional IRA. What can I do if the tax-year deadline has passed?

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.

I contributed too much money to the Roth IRA. What can I do if the tax-year deadline has passed?

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.

Can I borrow from my IRA? What are the rules?

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 borrow 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.

Can I make early withdrawals from my IRA?

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 earnings are penalty-free under certain circumstances.

What is my Modified Adjusted Gross Income?

Your Modified Adjusted Gross Income (MAGI) is used to determine whether you are qualified for certain tax benefits, such as how much of your IRA contribution is deductible. Your MAGI is calculated by taking your Adjusted Gross Income (AGI) and adding back in certain items, such as foreign income or higher education tuition. The resulting number will dictate your IRA contribution deductibility.

How do I invest funds within my account?

With a Schwab IRA, you have a wide range of investment options to choose from, including stocks, bonds, CDs, ETFs, and mutual funds. Build your own portfolio, or contact a Schwab investment professional to help you determine your investment plan.

What is an IRA Certificate of Deposit (CD)?

An IRA CD is an individual retirement account where funds are invested in Certificates of Deposits (CDs).

Will Schwab allow me to invest my IRA funds in CDs?

Yes. If you open an IRA account with Schwab, you may use your IRA funds to invest in CDs.

Where can I find IRA CD interest rates?

All of Schwab's current CD rates are available through Schwab CD OneSource. To see a selection of today’s rates, visit our Certificates of Deposits (CDs) page.

Learn More about Schwab IRA accounts

Learn more
Take the next step

Open a Schwab IRA today

or call 866-855-5635.

Advice Headline

Advice Headline

See how we stack up to the competition.

$0 online equity trade commissions + Satisfaction Guarantee.

These 8 mental mix-ups could be costing you money. Do you know what they are?

These 8 mental mix-ups could be costing you money. Do you know what they are?

More choices. More ways to invest how you want.

More choices. More ways to invest how you want.

Withdrawals & Distributions

Calculators

What is an IRA?

Types of IRAs

Why should I consider investing in an IRA?

Learn more about IRAs

Compare Roth vs. Traditional IRAs

Take money out of an IRA

Rollover an old 401(k) to an IRA

Common questions

Learn More about Schwab IRA accounts

Take the next step

We're here to help.

Call

Chat

Visit