Ira & Retirement Plan Investing Mistakes:withdrawal Rules, Rollovers, Spousal Ira Accounts
An IRA retirement account is one of the critical pieces of planning for retirement. There are some common mistakes that should be avoided. The following will discuss the additional 5 most common mistakes that are made.
IRA Mistake #5: Not Beginning Your Withdrawals on Time
It is very important to know and understand IRA withdrawal rules. If you have a SEP IRA, Simple IRA, or traditional IRA, you are required to take withdrawals upon reaching age 70 1/2. If you have a Roth IRA, there is no set withdrawal age. With the mandatory withdrawal, you could pay up to a 50% penalty if the withdrawals are not taken. Make sure to be aware of this rule and make your withdrawals on time to avoid losing money in penalty fees.
Keep in mind that you are required to make your first withdrawal on April 1 the same year you turn 70 1/2. You will also be required to take an additional withdrawal by December 31 of the same year. Not adhering to these strict withdrawal rules will result in penalties.
IRA Mistake #6: Not Withdrawing Enough Money
Now that you know and understand that traditional, Simple and SEP IRA retirement accounts require a mandatory withdrawal, you must plan on how much you will be withdrawing when you reach 70 1/2. There is a specific formula that is derived. It is based on your current age, how much is in the IRA account and your life expectancy.
You can determine the exact amount yourself by referencing the tables that are listed in Appendix C of IRS Publication 590. Your financial advisor can also provide you with this information. If you do not withdraw the required amount, you will incur a penalty. The penalty will reflect 50% of the difference between the actual amount you withdrew and the amount that was required. IRA withdrawal rules are very important and are strictly enforced.
IRA Mistake #7: Not Knowing the Contribution Limit: Tax Deductions & Penalties
Being unaware of the contribution limits is a common mistake made by many IRA account holders. Regardless of knowing which IRA is best, it is important to know what the maximum amount is per year for each. If you do not contribute the maximum allowable amount, you will be missing out on tax deductions as well as earnings that are tax-deferred. However, if you contribute more than the allowed amount, you will have to pay a penalty. The penalty can be still and could end up costing quite a bit.
IRA Mistake #8: Mishandling an IRA Rollover
If you have an IRA account and switch jobs or are a beneficiary to an IRA account, you will need to roll over those funds. There are some specific rules relating to IRA rollovers. They are not overly complicated, but they are strictly enforced.
To avoid the two common rollover mistakes, you must understand the rules associated with the rollover. First, you must complete the rollover transaction within 60 days of the date that the funds were withdrawn from the original IRA account. If the funds are not rolled over within that time frame, all money is considered taxable income.
Secondly, you are only allowed one rollover. Whether it is a rollover in or out of an IRA retirement account, each person is only allowed one transaction per year. If this rule is not adhered to, you will incur a penalty fee.
IRA Mistake #9: Not Contributing to a Spousal IRA
Many people feel that as long as they have their own IRA retirement account, their retirement planning is sufficient. This is not true. So many people overlook spousal IRAs. This is an important and effecting retirement planning tool. A spousal account can be opened in addition to your current Roth or traditional IRA. This account is crucial if your spouse is not employed, if they are employed part-time or if their current employer does not offer benefits. Annual contribution limits are doubled because you now have two separate IRA accounts. This means double the savings and double the earnings.
Avoiding these nine common mistakes will allow you to take advantage of all the benefits associated with an IRA retirement account. Don't get caught incurring additional fees because you were not aware of the rules and regulations surrounding the account.
