Episode 175: 5 Mistakes You Don’t Want to Make With Your IRA
Today’s Prep:
No one wants to make a mistake when it comes to their hard-earned money! David talks through common mistakes people make with an IRA and how to avoid them.
Equipping Points:
Today we’re talking about one of David’s favorite topics: the IRA. Unfortunately, there are a number of common mistakes people make with their IRA. Let’s talk about what those mistakes are and how to set yourself up for success instead.
If you have a Roth IRA, you may have considered the rule about waiting five years to take the money out again. If you open up a Roth IRA, there is no penalty or tax for taking money out that you put in. The penalty occurs if you take out the earnings over the first five years. You can always take out the money you put in anytime you want, regardless of age. It differs however on Roth conversions in your 50s. You won’t face a tax but you would face a 10 percent penalty if you take the money out early from a conversion when taking money out before 59 and a half.
Another mistake that some people make is not diversifying your 401(k) before retiring. Are you set up well for the retirement you want? After you turn 59, you can often roll out a significant portion of your 401(k) into an IRA that you self-direct or do with an advisor. This is called an in-service distribution which gives you access to a wider variety of investments.
When it comes to RMDs or required minimum distributions, there are a lot of strategies you can take advantage of, but many people overlook them. Are you giving a lot of your money to charity? You may want to set up a qualified charitable distribution. David shares an example of how this can impact your tax brackets and why it’s important.
There are a lot of mistakes when it comes to the 60-day rollover rule. If you have an IRA and you want to move it into a different IRA, you can only do that one time per year otherwise it becomes a taxable transaction. What could these penalties mean and how does your portfolio take a hit if you do it wrong? As you’re moving your money around, do a custodian-to-custodian transaction.
A lot of people are starting to inherit IRAs. There is no such thing as a 60-day rollover on an inherited IRA or Roth. If you want to maintain the tax status of that, it must be rolled from one custodian to another. This could change in the future, but for now, you want to be extra careful with how to handle inherited accounts.
Listen to the entire episode to hear more about the mistakes people make or click ahead to a particular IRA mistake using the timestamps below.
If you ever want your question spotlighted on the show or to ask David something about your retirement, email him at [email protected]
0:32 - Let’s talk about common IRA mistakes.
2:28 - Worried about the five year rule?
5:37 - Is your 401(k) diversified before you retire?
7:56 - Are you being strategic about RMDs?
13:17 - There’s no do-over on the 60-day rollover.
18:05 - There is no 60-day rollover on inherited IRAs.
Today’s Takeaway:
“The better you’ve done for yourself, the fewer tax mistakes you’d like to make."
– David Dickens
KC Financial Advisors Blog


