Tax and investments can be very complicated for many of us and it is why you might want to seek some professional guidance from sites like www.commercetrustcompany.com.
It is also worth noting that far too many of us make elementary and costly mistakes with our investments and if you can avoid some of these classic issues it could help improve your financial strength and stability.
Here is a look at specific mistakes that are commonly made by investors when it comes to their IRA.
#1 Tomorrow never comes
Probably the most fundamental and most costly mistake that many of us make is failing to anticipate our future financial needs and living for today rather than having one eye on the future.
All of a sudden, retirement looms and you start looking back at some of the missed opportunities to put extra cash away.
What is most important to remember when it comes to your IRA is that every year you are allowed to make a certain amount of contributions in a tax-efficient way. If you don’t make these payments to your retirement fund you will have reduced your income potential after you stop working.
#2 Understanding the difference between IRAs
You can’t be expected to be clued up on all the types of IRAs available to you but if you don’t appreciate the difference between the two main IRAs, Roth and Traditional, this could also prove costly.
It is always a good idea to invest in your financial future by getting some professional guidance and they will be able to tell you that a Roth IRA, for example, involves paying taxes on the front end so that all of your interest and earnings in retirement are tax-free.
You do not want to miss out on this chance for your money to enjoy tax-free growth
#3 Getting around the contribution rules
There are perfectly legitimate ways to make the right level of contributions toward your retirement even if you earn too high a salary to contribute to a Roth in the usual way.
This is another scenario where an advisor can show you how you can contribute to a nondeductible IRA and convert it to a Roth, allowing you to invest the right amount of money for your retirement in the most tax-efficient way possible.
#4 Getting your minimum distribution sums wrong could be very costly
In terms of retirement itself, there are strict IRS rules in place that call for required minimum distributions (RMDs) when you hot your 70th birthday.
If you don’t follow these procedures you could lose a chunk of your capital to IRS penalties that could potentially grab up to 50% of your retirement pot.
Don’t sleepwalk into that nightmare and anticipate what you need to do when the time comes.
#5 Getting the rollover deadline wrong
Another typical administrative error that can really hit your finances hard is when you don’t manage to follow the rules relating to a trustee-to-trustee rollover.
When it comes to IRA rules there is a fundamental difference between a calendar year and 365 days.
What can happen is you end up inadvertently doing two rollovers in one year and that can be a painful lesson to learn from a financial point of view.
Always check the rules beforehand as it is not possible to correct a mistake like this until it’s too late.
#6 We all hate paperwork
People who love the thought of filling in endless forms are definitely in the minority and most of us will willingly procrastinate or fail to pay attention and complete details incorrectly.
A typical example of where this could be a major problem relates to completing beneficiary forms.
If you don’t fill out the paperwork at all or do it incorrectly you could lose some key benefits.
#7 You think you can’t touch your money until retirement
There are a lot of misconceptions surrounding the subject of early withdrawal and many believe that it is not possible to gain access to funds that they need now rather than in retirement.
The bottom line is that you can withdraw your contributions but it’s the earnings you have made on those contributions that are a no-go area.
Obviously, it is better to not withdraw any funds if you can help it but if you do have to do this make sure it is done in the right way to avoid some harsh penalties.
#8 Understand the implications of early withdrawal
Unfortunately, a big percentage of us will end up retiring with not enough money to adequately pay for the retirement we want.
In addition to the warnings already outlined relating to penalties for early withdrawal, it is also worth noting that when you take money out of your retirement fund you are instantly depriving that cash of the chance to generate more gains.
It is not just the actual sum of money that you are taking out of the pot but a future number that will be diminished too, which is why you need to think carefully before taking out any cash.
#9 Failing to take advantage of the tax-free growth being offered to you
Somewhere near the top of the list of mistakes when it comes to IRAs and retirement planning, in general, is the fact that so many of us fail to take full advantage of the tax-free incentives available.
Every tax year represents a window of opportunity that you need to try and take full advantage of so that you can enjoy a more prosperous retirement.
It is never easy to put chunks of money away that you need right now, especially when you are raising a growing family, but if you were given a sneak preview of how your financial future was shaping up it might just sharpen your mind to focus on planning for retirement as well as living for today.
Seek out some professional guidance on financial matters and do what you can to avoid becoming one of the many who make some of these costly mistakes with their retirement money every year.
What are you doing to avoid these mistakes with your IRA?