IRA & Retirement Plan Investing's Biggest Mistakes:Naming a Beneficiary, Spousal Inheritance Rules, IRA Contributions Deadlines

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Powerpoint slides on a superior retirement planning strategy called Roth IRA on Roids which allows for tax-free distributions, tax-free growth, guaranteed principal and guarateed death benefits.An IRA retirement account is one of the critical pieces of planning for retirement. Millions of Americans have an IRA account that they contribute to. If you are eligible for an IRA account, contributions should be made consistently, each and every year. This is the best way to financially plan for your retirement. To take advantage of all the benefits associated with an IRA, there are some common mistakes that should be avoided. The following will discuss 4 of the 9 most common mistakes that are made.

IRA Mistake #1: Not Naming a Beneficiary

Upon opening an IRA, you are not required to name anyone as a beneficiary to the account. Even though this action is not required, it is highly recommended. If something happens to you and there is no beneficiary named for the account, it will end up in probate. This will be a long, drawn out process that will cost money that didn't need to be spent. The money in the account will be disbursed over the remaining life expectancy of the deceased account holder. This is usually a shorter amount of time than the expectancy of a beneficiary. In short, this means that money will be disbursed faster which will place a very heavy tax burden on the person who is receiving the money, which is determined in probate.

Naming a beneficiary when you open the IRA account will eliminate this. You will then be absolutely sure where your remaining IRA account will go after your death. You can also determine how fast the funds will be distributed.

IRA Mistake #2: Forgetting the Deadline for IRA and Roth IRA Contributions

Don't forget the core purpose of Roth IRA's – to fund it as much as possible for retirement! Many people believe that the last day they can make a contribution is on December 31, of the last day of the year. This is not true! You may continue to contribute up to April 15 of the following year. IRA contributions are based on the tax year – not the calendar year, so don't miss this extra time by assuming the end of the year means the end of contributions.

The best way to avoid this common mistake is to fund as much as you can early in the year. If you meet the maximum simple IRA contribution limit or Roth IRA contribution limit, you will not miss out on saving more money. The date of April 15 is referred to as an extended contribution deadline. These few extra months could make a huge difference for most savers in your IRA retirement account.

IRA Mistake #3: Not Knowing Spousal/Non-Spousal Inheritance Rules

There is a difference in the rules of inheritance that applies to spousal and non-spousal beneficiaries. If you are a spousal beneficiary, you have two options. You may roll the funds into an IRA that is already in your name, or you may change the name on the inherited account. After this is complete, the money will be viewed as if it were yours all along. Contribution and withdrawal rules will apply as if it were your own account.

Non-spousal inheritances work differently. You will not be able to roll the funds over to your personal IRA. You are also not allowed to make any contributions to the original IRA account.

IRA Mistake #4: Not Contributing Because of Stock Market Volatility

Due to the recent stock market meltdown, many people are questioning whether they should continue contributing to their IRAs. The answer is simple. Never stop contributing! Regardless of what the market is doing at any given time, you should take full advantage of the numerous benefits offered by an IRA retirement account. One of those benefits is a tax break. No matter what the state of the market is, you will continue to get tax breaks on all money contributed. If you are lucky enough to work for a company that will match your contribution, you make even more money with the account, as well as with the added tax breaks which will of course lead to IRA retirement income when it is time to spend it.

Click here to learn what are the additional common mistakes (5 to 9) made with your IRA & retirement plan investing.

Rocco Beatrice, CPA, MST (Master of Science in Taxation), MBA (Master of Business Administration), BSBA (Management/Accounting), CWPP (Certified Wealth Preservation Planner), CMMB (Certified Mortgage Broker), CAPP (Certified Asset Protection Planner), Managing Director, Estate Street Partners, LLC. Mr. Beatrice is an asset protection, award-winning trust, estate planning and tax expert.

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