IRAs come with rules, deadlines, limits and more, and making mistakes can be costly.
Below are three common mistakes investors make with their IRAs.
Beneficiary Designations
Regardless of what a will says at the time of passing, IRAs are passed via the recorded beneficiary designation on the account. Regularly ensuring that the designated beneficiaries are up to date and match your most current wishes is of paramount importance.
Having up-to-date primary and contingent beneficiaries will go a long way towards avoiding unnecessary unease or legal disputes surrounding your passing.
Post-Tax Vs. Pre-Tax Contributions
The investor is responsible for designating their IRA contributions as post-tax or pre-tax.
Pre-tax contributions are tax deductible now, but the taxes will come due at time of withdrawal. These contributions were added to your account before income taxes were paid on the funds.
Post-tax contributions are not tax deductible today and are not taxable once withdrawn. Post-tax contributions are added to your account after paying your taxes on that income.
If improperly documented, the investor can end up accidentally paying taxes on both pre and post-tax contributions at time of withdrawal. To avoid paying taxes on post-tax contributions, completing Form 8606 will be necessary to ensure taxes are only paid on account gains and pre-tax contributions. Investment custodians do not track whether a contribution is post or pre-tax.
RMDs
Age-dependent required minimum distributions can be calculated using one of two IRA RMD tables. The Uniform Table will apply to most, whereas Table II will be utilized by those with spouses more than 10 years their junior.
Using the incorrect table can lead to either withdrawing too much from your retirement account or not enough, both of which can be costly mistakes.
A Second Opinion
IRAs can be a crucial part of your retirement plan, but being unaware of the rules and nuances that come with them can lead to big mistakes and money lost. Seeking out assistance from an experienced financial professional can help to avoid unnecessary mishaps.
To schedule a complimentary financial review with Moore’s Wealth Management, click here or call our office at 770-535-5000, where a staff-member is awaiting your call Monday through Friday, 9AM to 5PM.
Sources:
https://www.kiplinger.com/retirement/3-costly-ira-mistakes-to-avoid
About Form 8606, Nondeductible IRAs | Internal Revenue Service
Publication 590-B (2022), Distributions from Individual Retirement Arrangements (IRAs) | Internal Revenue Service
Publication 590-B (2022), Distributions from Individual Retirement Arrangements (IRAs) | Internal Revenue Service
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