Mistake No. 6: Getting IRA rollovers wrong
Unfortunately, paying someone to take care of your financial transactions is no guarantee of perfection.
"Advisers are generally not proactive, and they don't check things," Slott says.
Administrative transactions, such as transferring a retirement account, require attention to detail. Whether you're rolling over a 401k or transferring your IRA to a new custodian, not only do you need to pay meticulous attention to those little check-boxes; the customer-service representative at the receiving institution also needs to be on alert.
"We see cases on this all the time. They find out the money never got to an IRA, the broker or bank moved the money and hit the wrong box, and it went to a regular account. That's a taxable distribution," says Slott.
Facing the prospect of losing the tax shelter of the IRA as well as paying the taxes owed on the entire account balance, an IRA owner has only one way of remedying rollover mistakes like these: "You have to go to the IRS for relief, and that is going to be expensive and take six to nine months to get a decision," Slott says.
Mistake No. 7: Blowing the deadline
A trustee-to-trustee rollover isn't the only option for moving between retirement accounts. Workers can take money out of their IRAs or take a distribution from their 401k when they leave an employer and put it back into a qualified retirement account without tax consequences -- as long as they do so within 60 days.
"That may seem like a long time, but a lot of people blow it. And another thing: You can only do that once every 365 days, not calendar year. Some people can lose their entire IRA because they did two rollovers in a year and didn't realize it," Slott says.
The safest bet is to do a direct transfer from one institution to another. When everything goes correctly, the money never comes out of a retirement account because the check is written to the receiving institution, not to an individual. In the end, however, the burden is on the account owner to make sure the new account is set up correctly.
Mistake No. 8: Neglecting beneficiary forms
Properly filling out a beneficiary form is a pain. Personal information from the beneficiaries is needed, including birth dates and Social Security numbers. It's so easy to focus on just getting the account open and then taking care of the beneficiaries later, someday -- it's on your to-do list.
"When you open an account, or transfer or convert, you need new beneficiary forms. Most don't check those things because they think someone else did or it's in their will," Slott says.
Not having a beneficiary form won't affect you after you die, obviously, but "your beneficiaries can lose valuable tax benefits, they won't be able to stretch (distributions) over their lifetime, so a lot of benefits can be lost -- or it can go to the wrong person," Slott says.
As with many aspects of these accounts, failure to properly check the details can come back to haunt you or your loved ones. When in doubt, consult a professional. But don't be afraid to double-check their work: It is your life savings, after all.
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The most significant factor in the amount of money accumulated at retirement is the amount you save, not the rate of return on investments.
Well that's just straight up mis-leading bullsh**. You can save less and end up with more if your return is higher, as anybody with any knowledge of savings and return knows. Now, given a fixed rate of return, obviously you'll have more if you put away more, but saying rate of return is not significant is like saying the interest rate on a mortgage is not significant - totally stupid.
Having an IRA is good for savers because you save tax free and since compoud interest is the second greatest force in the world after atomic energy. When you have to withdraw RMD required minimum distribution money you then pay taxes onthat money and all that interest for the first time after 30-40 years. Nlobody says you have to spend it by the way!!
best thing you can do for your IRA is "Self Direct " it!!!
put it in some non traditional investments...get a good IRA custodian who wont fee you to death!! Take the fund , and make it work for you!!
Dont just sit on it!!
Great article and thank you for the link early in the article to the ebri site. Incentive... for those able to claim the Form 8880 credit...contribute to an IRA, lower your AGI, get a credit up to 50% of contributions made up to 4,000 on a joint return...example below:
Several years later, after 8880 is no longer a HUGE advantage convert that accumulated IRA as long as effective tax rate is below 28%, you are paid - paid quite well to convert to Roth for future tax free retirement...
Young Al and Brenda have a 6 year old daughter they file a joint return
Al has 15,299 in wages
they got a nice refund last year of 1000 from child credit and EIC
they have 160 in dividends
they also (bear with me here) won a radio prize worth 2,800 and hit the slots for 3,700 this year - unlikely, but this is for effect - helps the EIC...
they decide to put last years refund to work in an IRA and also put 3000 into an IRA too - total 2000 each
AGI ends up being 33939
tax is 1108
Form 8880 credit eats up the tax at 1108, 0 tax
*IRA not only reduced their AGI (reducing their base tax and raised their EIC, but TOTALLY wiped out tax)
This year EIC 1152 refundable
this year child tax credit 1000 refundable
More than half way there for next year's IRAs
rinse and repeat.
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