Common IRA Mistakes
Everyone wants to boost their retirement savings and tax breaks can be a big help. One good idea is to use a traditional IRA to build your nest egg. Be careful. We have seen a number of people make mistakes, Here are some of the more common IRA mistakes.
Putting Tax-Free Investments Into A IRA
Don't put tax-free investments, such as municipal bonds, in an IRA. You'll end up paying ordinary income tax on money that wouldn't have been taxed, or you'll sacrifice earnings for a tax benefit you'll never receive.
Forgetting to Use Catch-Up Contributions
When you're 50 or older, you can contribute an extra $1,000 to your IRA each year. Don't forget to adjust your contribution levels.
Failing to Specify or Update Beneficiaries
When you set up your IRA you need to identify the benficiaries. If you set the IRA up some time again, be sure that the beneficiaries are up-to-date. Your choice of beneficiary can affect how quickly IRA funds must be distributed.
Don't Take Early Withdrawls
If you take money out of the IRA early, you'll pay regular income tax as well as a 10% penalty on early withdrawals from your IRA - some exception do exist.
Failure to Withdrawl
You are required to take distributions from your IRA when you reach 70 1/2. You have until April 1 of the year after you turn 70 1/2 to begin withdrawals. The penalty for withdrawing less than the required amount is 50% of the shortage.
Making any of these common IRA mistakes can be costly. If you'd like answers to your IRA questions, give us a call.