SEATTLE, WA, August 17, 2010 (Press-News.org) Personal finance expert Alyssa Holden has published a list of the 5 biggest mistakes that people make with their Individual Retirement Accounts.
On her blog about IRA advice, Holden reports that in 2010, the average value of Individual Retirement Accounts in the United States fell to less than $28,000, the lowest number in a decade. This means Americans, many unemployed, must work even harder to pay for their retirement.
Holden claims that often people's retirement savings are dismal because of simple mistakes. Individual Retirement Accounts confuse people, she says, but many workers miss lose tens of thousands of dollars in their lifetime because of common errors.
According to Holden, the top 5 IRA mistakes are:
5. Not Comparing Roth vs. Traditional IRAs
If you set your IRA up years ago, your bank or financial planner likely set you up with a Traditional IRA. Today, a Roth IRA can offer significant tax advantages to most people. This isn't true in every case, but in the long run a Roth IRA offers a better tax position when you eventually retire. If you're just starting an IRA and don't have the time to research, go with a Roth.
4. Thinking you Missed the Deadline
Most people think 2010 ends on December 31st. This isn't the case for IRAs. Every year, the government gives you until April 15th, the day most taxes are due, to make your maximum IRA contribution for the previous year. Don't forget to make your contribution before you file your taxes.
3. Not Reaching the IRA Contribution Limits
The more you contribute each year, the more you save in taxes and the larger your retirement savings. Because of the magic of compound interest, shorting your IRA even a few hundred dollars this year can mean the difference of thousands of dollars later on. The IRA contribution limits for 2010 are $5,000. IRA owners age 50 or older can make an additional $1,000 "catch-up" contribution in 2010.
2. Early Withdrawal
You already know that IRAs are designed not to be touched until you turn 59 1/2. Doing so will incur the wrath of the IRS and you'll be forced to pay taxes on income and investment earnings. But if circumstances demand that you withdrawal the money, be sure to put it back within 60 days to avoid penalties. Most people don't realize that federal regulations give you a 60 day grace period to pay back any IRA savings that you withdrew.
If you're reading this and thinking about starting an IRA, the best time to do is today. Putting your retirement plans off until tomorrow can cost you more than all the other mistakes combined. There is always an excuse and never enough cash flow. But by waiting you are dooming yourself to repeat the mistakes of yesterday.
Alyssa Holden is a blogger and personal finance expert who owns Greene Wealth Management in Seattle. Her website is http://iracontributionlimits2010.com.
Top 5 IRA Mistakes Cost US Workers Thousands of Dollars
Personal finance expert Alyssa Holden shares the biggest mistakes she sees people make with their IRA accounts.
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Personal finance expert Alyssa Holden shares the biggest mistakes she sees people make with their IRA accounts.