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The Vanguard Traditional IRA, SEP-IRA, and Roth IRA

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The Vanguard Traditional IRA, SEP-IRA, and Roth IRA The Vanguard Traditional IRA, SEP-IRA, and Roth IRA Disclosure Statement and Custodial Account Agreement Contents Vanguard Traditional and Roth IRA Disclosure Statement Section I—Revocation ................................... 1 Section II—Establishment of your account ................... 1 Section III—Contributions ................................ 2 Section IV—Transfers.................................... 6 Section V—Rollover contribution ........................... 7 Section VI—Conversions to a Roth IRA ...................... 8 Section VII—Taxation of distributions ....................... 9 Section VIII—Methods of distribution ...................... 11 Section IX—Simplified employee pension................... 12 Section X—Income tax returns ........................... 13 Section XI—Prohibited transactions........................ 13 Section XII—Other information ........................... 13 Vanguard Traditional and Roth IRA Custodial Account Agreement Article I—Definitions ................................... 15 Article II—Contributions to Account ....................... 16 Article III—Investment of Account......................... 17 Article IV—Distribution of Account ........................ 18 Article V—Transfers .................................... 22 Article VI—Reporting, disclosure, and fees . 23 Article VII—Amendment, termination, and assignment ........ 23 Article VIII—Miscellaneous .............................. 24 Vanguard Traditional and Roth IRA Disclosure Statement Introduction 4. Prohibitions against life insurance and commingling. No part of your IRA assets may be invested in life This Disclosure Statement describes the general insurance contracts, nor may your IRA assets be requirements and features of both a traditional and a commingled with other property except in a common Roth IRA, as well as the specific features of the Vanguard trust fund or common investment fund. Traditional and Roth IRA Custodial Account Agreement. This Disclosure Statement is provided in accordance with Internal 5. Distribution rules. Your IRA must comply with certain Revenue Service (IRS) regulations. (Where the requirements minimum distribution requirements, which are described for a traditional and a Roth IRA are the same, this Disclosure in Section VIII. (No age 70½ distribution requirements Statement refers to both types of accounts as an “IRA.”) apply for Roth IRAs.) B. Tax consequences of traditional IRA Section I In general, the federal income tax consequences of Revocation establishing a traditional IRA are the following: ® You may revoke your Vanguard IRA at any time within 1. Tax-deferred earnings. Earnings and gains on your seven days after it is established by mailing or delivering a traditional IRA contributions will not be subject to federal written notice of revocation to Vanguard, P.O. Box 2600, income taxes until they are actually distributed. Valley Forge, PA 19482-2600. Any notice of revocation will be deemed mailed on the date of postmark (or if sent by certified 2. Deductible contributions. You may be permitted to or registered mail, the date of certification or registration) make contributions to your traditional IRA that are if it is deposited in the U.S. Postal Service in an envelope deductible for federal income tax purposes in an amount or other appropriate wrapper, first-class postage prepaid, up to the lesser of the contribution limit in effect for properly addressed. Upon revocation, you will be entitled to a such year or 100% of your current-year compensation. full refund of your entire IRA contribution without adjustment You are permitted to make deductible traditional IRA for administrative expenses, sales commissions (if any), contributions if neither you nor your spouse is an active or fluctuations in market value. If you have any questions participant in an employer-maintained retirement plan, or concerning your right of revocation, please call 800-662-2739 if your adjusted gross income for the taxable year does during normal business hours. not exceed certain dollar limits. To the extent that your traditional IRA contributions are not deductible, they may be treated as “nondeductible contributions” that Section II must be reported on your federal income tax return. See Establishment of your account Section III[D] for more information. A. Statutory requirements 3. Taxable distributions. Distributions from your traditional An IRA is a trust or custodial account established for the IRA will generally be taxable as ordinary income in the exclusive benefit of you and your beneficiaries. The Internal year of receipt, with the exception that if you have Revenue Code of 1986, as amended, provides for several made any nondeductible contributions or after-tax types of IRAs, including a “traditional” IRA and a “Roth” rollover contributions to your traditional IRA, part of IRA. You must clearly designate on the forms establishing your traditional IRA distributions may be treated as a your IRA that your account is either a traditional IRA or a nontaxable return of your nondeductible traditional IRA Roth IRA. An IRA must be created by a written document contributions or after-tax rollover contributions. Any that meets all of the following requirements: distributions you receive from your traditional IRA prior to age 59½ may be subject to an additional 10% tax 1. Bank trustee or custodian. An IRA must be established (although exceptions may apply—see Section VII[C]). with a qualified trustee or custodian, such as Vanguard You must start receiving certain minimum distributions Fiduciary Trust Company, which is a bank or other from your traditional IRA beginning by April 1 of the year person approved by the IRS. You cannot be your own following the year in which you attain age 70½ (see trustee or custodian. Section VIII[B]). 2. Cash contributions up to annual contribution limit. All 4. Tax-free rollovers. You may be eligible to make a contributions to your IRA, excluding rollover or conversion rollover contribution to your traditional IRA of cash contributions as described in Sections V and VI, must be or other assets you receive from another individual made in cash. The total amount of contributions, other retirement plan or employer-maintained retirement than rollover or conversion contributions, for any taxable plan. In addition, you may be eligible to roll over the year to your traditional and Roth IRAs may not exceed taxable amount you withdraw from your traditional IRA the contribution limit in effect for such taxable year as to another individual retirement plan or an employer- described in Section III[A]. maintained retirement plan. See Sections V and VI for 3. Nonforfeitability. The balance of your IRA account must more information. be fully vested and nonforfeitable at all times. 1 5. State taxes. The state tax consequences of your traditional Contributions IRA will vary from state to state. You are strongly A. Amount and timing of traditional and Roth IRA encouraged to consult a tax advisor to determine the contributions state tax consequences of establishing a traditional IRA. Maximum annual contributions to all IRAs. The total C. Tax consequences of a Roth IRA amount of contributions to all of your IRAs (both traditional In general, the federal income tax consequences of and Roth IRAs) for any taxable year (excluding any rollover establishing a Roth IRA are the following: or conversion contributions as described in Sections V and VI) may not exceed the lesser of the contribution limit in 1. Tax-deferred earnings. Earnings on contributions to a effect for such taxable year as described below or 100% of Roth IRA will accumulate on a tax-deferred basis and your compensation for the taxable year. If you reach age 50 may ultimately be tax-free if the earnings are part of before the close of the tax year for which you are making a “qualified distribution.” (A “qualified distribution” is a contribution, your annual contribution limit is increased generally a distribution made to you after age 59½ and by $1,000 as described below. In addition, the maximum after you have held your Roth IRA account at least five contribution permitted under a Roth IRA is phased out to $0 years [see paragraph 3, below].) for individuals earning above a certain level of adjusted gross 2. Nondeductible contributions. Contributions to a Roth income (see Section III[C]). IRA are not deductible for federal income tax purposes. The annual IRA contribution limits for 2018 are shown below. 3. “Qualified” distributions are completely tax-free. Maximum annual contribution Maximum annual contribution A distribution from a Roth IRA will be tax-free for Individuals under age 50 Individuals age 50 or older federal income tax purposes as long as it is a “qualified $5,500 $6,500 distribution.” A qualified distribution is a distribution from The contribution limit will be periodically adjusted for cost-of-living a Roth IRA: (1) made after a five-year holding period, and increases in $500 increments. (2) made after age 59½, due to death or disability, or for the first $10,000 of “qualified first-time home purchase Definition of compensation. For purposes of the IRA expenses.” See Section VII[B] for more details. contribution limits, your compensation includes all wages, salaries, tips, professional fees, bonuses, and other amounts 4. “Nonqualified” distributions are tax- and penalty-free you receive for providing personal services, and any earned return of contributions first; taxable earnings last. income from self-employment. It does not
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