Retirement planning mistakes can be costly. Seek the help of a financial planner or tax attorney to achieve the goals for a comfortable and stress free retirement.
1. Not Having a Plan
Do you know how to achieve the retirement lifestyle you want? Consider these three things.
- When do you want to retire?
- How much income will you need?
- What steps can you take not to help you achieve your goals?
When you have defined your goals, we can develop a financial plan to reach them.
2. Not Naming or Updating Beneficiaries
It’s crucial to keep beneficiary designations current. If you do not have primary and contingent beneficiaries, it may result in your assets being passed on to your estate, which could result in accelerated distributions and taxation.
3. Investment Mistakes
Being too aggressive or too conservative are common investment mistakes. For example, holding too much of your employer’s stock and a failure to periodically rebalance your investments. We like to hold regular portfolio reviews to help keep your goals on track.
4. Not Knowing About In-Service Withdrawals
Your employment retirement plan may allow you to withdraw money while you are still employed. Some plans allow hardship distributions, which can be a source of funds in an emergency. If you have reached age 59 ½ and feel you can receive better investment results elsewhere, you may be able to withdraw money from your plan and roll it into an IRA.* Amounts you withdraw that are not rolled into an IRA are subject to income tax and possibly an early distribution penalty. Some plans impose restrictions on contributions after a hardship withdrawal.
5. Not Considering a Roth
Distributions from a Roth IRA account can be tax free, do not affect the taxation of Social Security, and can pass income-tax free to your beneficiaries. You will not receive a tax deduction for your contribution. Ask us whether the Roth option is right for you.
6. Paying Unnecessary Penalties on Early Distributions
Distributions from a retirement account before age 59 ½ can be subject to a 10% penalty. There are a variety of exceptions. If you need to take an early distribution, review your plan document and talk with your HR contact or financial planner.
7. Failing to Consider Net Unrealized Appreciation
If you own your employer’s stock in your qualified plan, you may be eligible for a special tax treatment called net unrealized appreciation (NUA). In some cases, NUA treatment will result in a lower total tax liability. The rules are complicated and NUA treatment is not always your best option. Talk with your financial and tax advisors before taking a distribution from your plan because some mistakes can make you permanently ineligible for NUA treatment.
8. Not Taking Advantage for IRD if You are a Beneficiary
If you inherit a retirement account from someone who had to pay the federal estate tax, you could be eligible for an income tax deduction called income in respect of a decedent (IRD). The amount of an IRD deduction is equal to the amount of the estate tax paid on your portion of the account. You will need to consult with a tax professional.
9. Required Minimum Distribution Errors
The penalty on a missed RMD is high at 50%. The rules of RMDs from 401(k)s and other qualified plans are different than the rules for IRAs. Make sure you understand your RMD requirements.
10. Not Taking Advantage of the Stretch Distribution Option
A designated beneficiary of a qualified plan can roll assets into a beneficiary IRA. This can help the beneficiary to spread distribution and limit taxation over a long period as well as, offer the potential for continued tax-deferred growth. A failure to follow specific IRS guidelines can make your permanently ineligible for this strategy.
11. Ignoring Taxes
You need a financial plan that adapts to different and changing tax rates. Maintaining diversified mix of tax treatments can give you the ability to adapt to tax changes.
Having Too Many Accounts
Avoid keeping your assets in too many places to reduce the complexity of your retirement plan. Consolidation makes it easier to allocate assets effectively to reach your financial goals.
12. Not Getting Ongoing Advice
The market changes, tax laws change, and your goals may change. Regular financial review meetings make sure you’re still on track to meet your needs.
*There are advantages and disadvantages to an IRA rollover, depending on investment options, services, fees and expenses, withdrawal options, required minimum distributions, tax treatment, and the investor’s unique financial needs and retirement plans. Be aware that rolling over retirement assets into an IRA account could potentially increase fees, as underlying funds may be subject to sales loads, higher management fee, 12b-1fees, and IRA account fees such as custodial frees. If any of these issues apply to your situation be sure to discuss with your financial advisor or attorney. Avoid costly mistakes