Seven Common Retirement Account Mistakes
March 10th, 2017 by admin
It is all too easy to make a mistake that can cost you plenty if you do not actively manage your retirement assets. Here are some common retirement account mistakes that can easily be avoided.
| Borrowing money, then leaving your job. Those with employer-provided retirement accounts, such as 401(k)s, can often borrow money from their accounts. Unfortunately if you leave your job, this money must be repaid immediately. If it’s not repaid, your loan will be considered a withdrawal of funds, creating a hefty tax bill and early withdrawal penalty. | | Incorrect rollover of funds. If you plan on moving funds from one retirement account to another, do not have the withdrawal check issued to you. If the funds are not correctly redeposited, your transfer could be deemed a taxable event. | Better: Create a trustee-to-trustee transfer. By having the funds go directly from one retirement account to another, you eliminate the risk of the IRS assuming you made a withdrawal.
| Waiting until 70½ before taking money out. A key concept in retirement planning is to make your retirement accounts as tax efficient as possible. This often means taking money out of an account before you actually need it. When you reach age 70½ or older most retirement accounts require you to take a minimum distribution based on a formula. | Better: Review your tax situation each year. It may make sense to take a withdrawal out of a retirement account now in order to pay a lower tax compared with the tax on a required distribution when you are older.
| Not reviewing beneficiaries. The beneficiaries of most retirement accounts have priority over what is stated in your will. This can have unintended consequences.Better: Review your retirement account beneficiaries each year. Note alternative beneficiaries if allowed within the account. | | Page 1 of 2 | Next page
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