A Roth IRA is a great way to save up for your future when you will want to have more money to enjoy with your retirement. With Roth IRA’s being very popular among a number of American’s, understanding how they work and getting the most out of them is essential. Today, we want to give you 5 crucial mistakes to avoid when you are dealing with your Roth IRA.
1) Putting in Too Much
One of the most common Roth IRA mistakes that are made without people often knowing they are doing it is accidentally putting in too much money to the account. When people see more income coming in for one year than they have had before, it can be easy to add an extra thousand or few into your account without thinking anything of it.
Unfortunately, this can lead to you exceeding the limit of $6,000 that will result in a 6% penalty on whatever additional amount is in the account above the limit. There are a number of ways to deal with this issue but being aware and acting fast will prevent serious losses.
2) Not Accounting for a Spouse
If you have the funds and want to essentially double your IRA amount, having a spouse account can allow you to get much better returns in the future. With you and your spouse being legally married and filling out a joint tax return, you are eligible to set up a spouse Roth IRA so that you can both have more money to spend when you later need it. The spouse who the account is set up for also needs to be not working for the account to be made.
3) Taking Out Your Earnings Early
The entire point of a Roth IRA is so that you have more flexible money to spend when you retire, so taking money out early is counterproductive and comes with a heavy price. Pulling out the money before you are 59.5 years old or using the money for something like a first home can have consequences like facing a 10% penalty on earnings that you are taking out of the account.
4) Neglecting Beneficiaries
In the case of a Roth IRA’s owner dying, not having a list of beneficiaries can make collecting the money troublesome for those who deserve the funds. Listing out beneficiaries that you want to inherit the money will ensure that they can easily get the funds and not have to deal with attorney fees and probates to get the money from the account.
5) Not Abiding by the Rollover Rules
The rollover rules that were recently updated to not allow you to complete a rollover within 365 days of another one have caught many off-guard. Doing more than one rollover in a 365 day period can result in catastrophic losses that can lose you everything. Make sure you know when you last did a rollover to prevent this from happening.