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Health & Fitness

Final 5 Costly Retirement Planning Mistakes

Joe Lucey completes his top ten list of common mistakes made in financial planning that can cost retirees plenty.

Two weeks ago, I began with the first five of a top ten list of the most common costly mistakes repeated by families with their retirement accounts.  It’s a tragedy to see the retirement nest egg you’ve worked so hard to build be stolen by these frequent errors. This week,  I round out the list with the next five of the repeat offenders Secured Retirement Advisors sees most often.

6- Lack of Beneficiaries

Keeping beneficiary designations current will keep your retirement accounts out of probate. When not listing primary and contingent beneficiaries, IRA assets may fall into the estate which can result in accelerated distributions and taxation. Coordinate them with other estate planning documents to avoid conflicts and unintended results. Proper planning will enable each of your IRA beneficiaries the ability to “stretch” the life of your IRA after it passes on, maximizing payouts over their life expectancies.

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7- Placing title into a trust or passing direct to children

Leaving your retirement accounts to a trust can be tricky. Making a trust the actual owner of your IRA causes immediate taxation and potential penalties. When a minor inherits retirement assets they are not legally able to make financial decisions and a guardian needs to be established.

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8- Timing is Everything, Inappropriate Spousal Rollovers

Just because you can doesn’t mean you should. Most IRA owners list a spouse as the primary beneficiary of their retirement accounts. All too often, we see a spousal beneficiary simply roll the inherited IRA into his or her own IRA which can create timing issues. If the decedent had obtained the age of 59 ½ and the surviving spouse is younger, the surviving spouse may want to keep the funds in the name of the decedent which would allow them to maintain access to the account penalty free until they reach 59 ½ themselves. Additionally, it is often more tax efficient for an older surviving spouse to keep the IRA as an inherited beneficiary IRA using more lenient required distribution schedules. Finally, consider disclaiming unneeded retirement assets, thereby allowing them to pass to a contingent child or grandchild beneficiary.

9- Roth Mistakes

Roth IRAs can be a potentially valuable retirement resource. Not only are qualified withdrawals tax-free, but Roth IRA distributions do not impact the taxability of Social Security, avoid required distributions and pass to beneficiaries tax-free. The number one most common Roth mistake we see is when families that don’t take advantage of this valuable tool.  The second and third most common mistakes occur when families either convert to Roth’s too fast causing excess taxation or don’t recharacterize (the equivalent of a financial “mulligan”) when a Roth IRA conversion goes bad.

10- Ask the Right Questions First 

Your IRA, 401(k) or other retirement account may be the largest single asset you own, so don’t make any assumptions based on how things work for other investment vehicles. Your retirement accounts and IRAs are different from other investment assets in many ways and planning mistakes are often irreversible or very costly to correct. Treat your IRA like a medical condition. Seek the advice of professionals who specialize and are up to date in their nuances.  If you’re unsure about the advice you’ve been given, don’t be afraid to get a second, or even a third, opinion.

 

There you have it, ten of the most common mistakes we frequently see in our office regarding IRAs and retirement plans. Are you aware of a mistake that should have been included? I look forward to hearing your comments.

Hopefully these tips are helpful and will avoid some of these frequent offender retirement account mistakes. Feel free to call Secured Retirement Advisors with your retirement planning questions at 952-460-3260 or visit us for a complementary consultation.

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