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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