Ready to get started? Open an IRA today
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What is a Roth IRA?
A Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement. Roth IRA rules dictate that as long as you've owned your account for 5 years* and you're age 59½ or older, you can withdraw your money when you want to and you won't owe any federal taxes.**
Other Roth IRA advantages
Required minimum distributions (RMDs)
Most owners of traditional IRAs and employer-sponsored retirement plan accounts—like 401(k)s and 403(b)s—must withdraw part of their tax-deferred savings each year, starting at age 72 (age 70½ if you attained age 70½ before 2020). If you withdraw less than the RMD amount, you may owe a 50% penalty tax on the difference. Roth IRAs have no RMDs during the owner's lifetime.
Modified adjusted gross income (MAGI)
An amount used to determine a taxpayer's IRA eligibility. Generally, it's the taxpayer's adjusted gross income calculated without certain deductions and exclusions.
Compounding
The snowball effect that happens when your earnings generate even more earnings, not only on your original investments, but also on any interest, dividends, and capital gains that accumulate. That means that your "money makes money" and can grow faster over time.
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*The 5-year holding period for Roth IRAs starts on the earlier of: (1) the date you first contributed directly to the IRA, (2) the date you rolled over a Roth 401(k) or Roth 403(b) to the Roth IRA, or (3) the date you converted a traditional IRA to the Roth IRA. If you're under age 59½ and you have one Roth IRA that holds proceeds from multiple conversions, you're required to keep track of the 5-year holding period for each conversion separately.
**If you inherit a Roth IRA, you must take RMDs, but they're tax-free as long as the original account owner held the account for at least 5 years.
**When taking withdrawals from an IRA before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.
You may wish to consult a tax advisor about your situation.
Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.