Mar 01, 2021
These days we need to do all we can to boost our retirement savings, and tax breaks can help. To build your individual retirement account and maximize your potential savings, avoid these common IRA mistakes:
- Do not delay opening an IRA. The earlier you start, the longer your savings will compound tax deferred. Those extra early years of compounding can amount to a sizable sum of money come retirement age. Even teenagers or college students should consider saving some of their earnings in an IRA.
- Do not put the wrong investments in an IRA. Never put tax-free investments, such as municipal bonds, in an IRA. You will end up paying ordinary income tax on money that would not have been taxed, or you will sacrifice earnings for a tax benefit you will never receive.
- Do not overlook the catch-up contribution. If you are age 50 or older, you can contribute an extra $1,000 to your IRA. That is in addition to the regular $6,000 limit for 2021.
- Do not name the wrong beneficiary. Your choice of beneficiary can affect how quickly IRA funds must be distributed. The longer money stays in the IRA, the longer it grows tax deferred.
- Do not choose just one IRA beneficiary. Naming a contingent or backup beneficiary gives your heirs tax planning opportunities after you die.
- Do not choose the wrong type of IRA. Decide whether a Roth IRA or a traditional IRA is best for your age and circumstances. You cannot deduct contributions to a Roth, but distributions are generally tax-free when you retire. Traditional IRA contributions may be deductible, but distributions are taxed.
IRA mistakes can be costly. If you would like answers to your IRA questions, please reach out to your investment advisor representative. They can be reached in Cedar Rapids at 319-364-3041 or in Iowa City at 319-339-4884.