I see people making the same IRA mistakes over and over again because they just don’t know enough about IRAs. That’s why I advise anyone to work with a Certified Financial Planner (CFP)—even if it’s not me. Until you can do that, do everything you can to avoid these 8 great IRA mistakes with your retirement portfolio. If you own an IRA—traditional or Roth—this is a can’t-miss episode of the Retirement Made Easy Podcast. 

You will want to hear this episode if you are interested in...

• [1:04] Submit a question at RetirementMadeEasyPodcast.com!
• [3:14] Don’t forget to check out the 3 Steps to Retirement Planning
• [5:01] Mistake #1: Neglecting the spousal IRA opportunity
• [7:04] Mistake #2: 401k and IRA Required Minimum Distributions (RMD)
• [9:33] Mistake #3: Forgetting about Net Unrealized Appreciation
• [11:18] Mistake #4: Forgetting to update the beneficiaries on your IRA
• [13:47] Mistake #5: Listing a trust as the beneficiary of an IRA
• [15:28] Mistake #6: Improperly executing a Roth conversion
• [16:40] Mistake #7: Contributing to a Roth IRA when you’re not eligible 
• [17:52] Mistake #8: Doing an indirect rollover with your IRA

Mistake #1: Neglecting the spousal IRA opportunity

Did you know that if you are a non-working spouse, there is a spousal IRA? If you’re over 50 and the working spouse makes over $14,000 per year, he or she can contribute $7,000 to an IRA—and you can too. You can set up a Roth or Traditional IRA and contribute up to $7,000 per year. Many couples aren’t aware of this possibility.

Mistake #2: Required Minimum Distributions (RMD) 

Once you turn 72, you have to start taking required minimum distributions from your 401k, Roth 401k, or traditional IRA. If you have three old 401ks from previous employers, you have to take a RMD from each 401k. 

The rules are different for IRAs. If the RMD is $1,000 a piece from each IRA, you can take a $3,000 RMD from one and not touch the other two. Or you could take $1,500 from one, $1,500 from another, etc. You want to plan for each of these scenarios so you’re not paying unnecessary taxes!

Mistake #3: Forgetting about Net Unrealized Appreciation 

If you have an IRA or 401k with company stock in it, don’t roll it into an IRA. Why? Net unrealized appreciation. You’ll pay capital gains on part of the company stock that’s rolled over. You’ll end up paying a lot of money in taxes that you don’t need to. Talk to a financial planner who understands net unrealized appreciation before you do anything.

Mistake #5: Forgetting to designate a beneficiary

31% of IRAs aren’t listed with a beneficiary. What happens if you don’t list a beneficiary? Your “estate” is your beneficiary, which means it goes through probate court. It leads to unnecessary costs, estate taxes, Medicare surtax, etc. It will cost your family time and money. It’s a nightmare that can be avoided. 

NOTE: Many IRAs end up in the hands of an ex-spouse because they still have the former spouse listed. Whoever is listed as the beneficiary is who gets the money. 

Mistake #5: Listing a trust as the beneficiary of an IRA

If you inherit an IRA, you’ve got 10 years to take distributions from it. It has to be drained by the end of the 10th year. If you have an outdated trust as the beneficiary, it will be taxed at a trust tax rate (anything above $13,450 is taxed at 37%). If the trust isn’t written properly, the money has to come out within five years. This isn’t the best way to pass on money from your IRA. 

Mistake #6: Improperly executing a Roth conversion

If you’re under 59 and a ½, convert $50,000 of your IRA and withhold taxes, you’ll pay a 10% penalty. If you don’t withhold taxes on the $50,000, there is no 10% early withdrawal penalty. Many people give Uncle Sam a tip because they do Roth conversions improperly. 

Mistake #7: Contributing to a Roth IRA when you’re not eligible 

Did you know that you might make too much money to contribute to a Roth IRA? There are income caps for Roth IRAs and traditional IRAs. Make sure you’re eligible before you set these up. There is a steep penalty of 6% for each year the excess amount remains in your IRA or Roth IRA. 

Mistake #8: Doing an indirect rollover with your IRA

Instead of indirectly transferring money from one IRA to another, you should do a direct transfer or direct rollover. It goes from one Custodian to another and the money remains in the same registration type (i.e. pre-tax). An indirect rollover happens when money is sent from an IRA or 401k to you. You’re responsible to get the money into the appropriate IRA within 60 days. If you fail to do so, you pay taxes on that money and get hit with a 10% penalty.

Resources & People Mentioned

• 3 Steps to Retirement Planning

Connect With Gregg Gonzalez

• Email at: [email protected] 
• Podcast: https://RetirementMadeEasyPodcast.com
• Website: https://StLouisFinancialAdvisor.com
• Follow Gregg on LinkedIn
• Follow Gregg on Facebook
• Follow Gregg on YouTube

Subscribe to Retirement Made EasyOn Apple Podcasts, Spotify, Google Podcasts