10 Costly Retirement Account Mistakes (Part 1)
Money Girl covers 10 retirement account mistakes that could end up hurting your finances and how to easily avoid them.
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Mistake #3: Not Using Rollovers
If you leave a job where you had a workplace retirement account, such as a 401(k) or 403(b), don’t forget about your money. An easy way to consolidate one or more retirement plans is to roll them over into an IRA.
Doing a rollover involves 3 steps:
- Open the appropriate IRA.
- Initiate a rollover from your former employer’s plan custodian by submitting a distribution request, using a paper or online form.
- Choose how to allocate your money in the new IRA.
See also: What Is an IRA Rollover?
Doing a trustee-to-trustee transfer or direct rollover is best, so your money goes straight from your old plan into your new IRA and there are no tax implications. If you keep any portion of a rollover distribution longer than 60 days, you’ll owe income tax plus a hefty 10% penalty if you’re under age 59½.
Mistake #4: Thinking You Missed the Contribution Deadline
While December 31 is the deadline to contribute to some types of retirement accounts, that’s not the case with IRAs. You actually have 3½ more months, until tax filing day, to make a traditional or Roth IRA contribution for the previous year.
See also: 15 IRA Rules You Should Know
So while it’s best to make retirement contributions earlier rather than later, putting it off until after the New Year is okay—just don’t miss the April 15 deadline.
Mistake #5: Waiting to Get Started
Many times what hurts the most isn’t picking the wrong investment—it’s waiting too long to get started investing in the first place. The earlier you get into the habit of putting money aside for the future, the better.
You can avoid the natural tendency to procrastinate and make excuses by setting up monthly automatic transfers from your bank account into your IRA. After a while you won’t even realize the money isn’t there and you’ll adjust your spending to what’s left over in the bank.
Having patience and making consistent investment contributions is an easy way to achieve a huge amount of financial success and happiness.
See also: How Much Money Do You Need to Retire?
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