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Do Not Do This With Your IRA

  • July 27, 2020

Are you a landlord, or do you want to become one when you retire? Well, funding your IRA is one viable method real estate investors recommend to prospective realtors. Whether you choose the traditional IRA, Roth IRA, or Self-directed IRA, these retirement investment options come with various regulations that must be followed. Disregarding the rules might result in tax benefit losses or even penalties. Each IRA is unique to the owner, so it is essential to understand yours, especially if you want to avoid common mistakes people make concerning retirement investment. Here is a brief look at seven things you should not do with your IRA.

1. Ignoring the Employer’s Match

Some employers offer to match your contributions towards your individual retirement accounts. This may be a percentage of your salary, like in the case of a simple IRA. It would help if you took advantage of such plans, considering the contribution reduces your taxable income, grows your retirement savings, and has little effect on your paycheck. You can set aside 3% of your salary towards the IRA, and the employer will match it. It is also essential to calculate the long-term implication on your paycheck and IRA contributions.

2. Not Understanding Your IRA

There are different types of IRAs available for those that want to save for their retirement. Popular options include the traditional IRA, Roth IRA, and Self-directed IRA. Each option has unique rules, and most people assume the rules affect all accounts, which isn’t the case. For instance, the IRS allows non-working spouses to save for retirement, and while high-income earners are barred from Roth IRA, they still have access to the traditional options. As such, you should never think you earn too little or too much to contribute to your IRA. Instead, seek out comprehensive information to have a clear understanding of the options and regulations.

3. Ignoring Annual Contribution Limits

Contributing more on your IRA will provide a bigger nest egg to survive on during your senior years. However, the IRS has a cap on how much of an annual contribution you can make towards your IRA. There is also the risk of underfunding your account if you do not know the annual contributions you are entitled to make. For 2020, all adults under 50 years of age can contribute up to $6000 per year towards their IRA. If you are above 50, the IRS allows an additional $1,000 catch-up, which you should take advantage of if you are behind on your savings.

4. Early Withdrawals

The IRS will charge a 10% penalty and income tax for early withdrawals. Retirement plans are designed to help you when you retire, and the IRS permits penalty-free withdrawals only after you reach 59½ years of age. As such, it is recommendable to leave your IRA alone until you have reached the required age. However, there are some exceptions where the IRA won’t penalize early withdrawals. This includes first-time home purchases, paying for higher education, childbirth or adoption, and permanent disability. Make sure you check the exceptions for your IRA to avoid attracting early withdrawal penalties.

5. Waiting Until the 11th Hour to Start Saving

When people hear about retirement plans, they assume it is for the elderly or those nearing retirement age. Many wait until their last years at work to start saving, which is one of the worst decisions you can make. It is recommendable to start saving early. Similarly, it would be best if you made the payments early in the year to begin compounding and earning interest. Waiting until the end of the year can hurt your interest and result in future financial woes. If you cannot get the full contribution early, an auto-investment plan that pays a fixed amount per month until you hit the limit is recommendable.

6. Forgetting Spousal Contributions and Beneficiaries

Individual retirement accounts aren’t for the working person alone. Even non-working spouses can fund their IRA accounts, and it is critical to make contributions for your non-working spouse, especially if you can afford it. Saving for the both of you will ensure you have enough to spend during your later days. It also comes with added benefits, which is why you should max out both contributions. You should also update your beneficiary information to ensure your money goes to the right person in case you die.

7. Overlooking Professional Advice

It is exhausting to follow up on all investments and property management without professional help. To avoid making common mistakes and losing your hard-earned income or benefits, you should engage the services of reputable property managers to help you understand the options and make the best decisions. You cannot be involved in the management process, and it’s a really good idea to go to a source like to get matched up with the perfect Property Manager.

Additional Things to Consider

There are several other minor mistakes you should avoid when planning your IRA. Doubling up on tax shelters, forgetting to reinvest needed RDMs, and overlooking advice on inherited IRA all spell problems in the future. If you aren’t sure how to approach your retirement plan, it is recommendable to contact professionals to help you navigate the complex world of individual retirement accounts.

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