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Saving for retirement with an IRA is a smart move! Traditional IRAs offer tax-deferred growth, while Roth IRAs grow tax-free, with no taxes on withdrawals in retirement. This tax season, make sure to take full advantage of these benefits and avoid common filing mistakes that could impact your future!
Mistake No. 1: Over-Contributing Throughout The Year
Maxing out your IRA contributions is a smart move for growing your retirement savings, but it’s key to make sure you don’t accidentally go over the limit. If you do, there’s a 6% penalty on the extra contributions, which can be a real bummer. So, it’s worth double-checking the numbers each year to avoid that unwanted fee!
How to Avoid It: Act Quickly
If you've overcontributed to your IRA, you have until the tax filing deadline (typically April 15) to correct it, unless you've applied for an extension. If you have an extension, you have until the extended filing deadline (usually October 15) to remove the excess contributions. If you choose to leave the excess in the account, you'll face a 6% penalty on the excess amount for each year it remains in the IRA until the excess is removed. After removing the excess contributions for the current year, you can make new contributions for the following year, as long as those contributions comply with that year's contribution limits.
Learn more about excess contributions from the IRS.
Mistake No. 2: Not Updating IRA Beneficiaries
It’s easy to forget, but not keeping your IRA beneficiaries up to date can cause big headaches for your loved ones later on. If you haven’t reviewed your beneficiary designations in a while, your assets might end up going to someone you didn’t intend to, and can lead to delays or even disputes.
How to Avoid It: Review and Update Regularly
To prevent this, make it a habit to check your IRA beneficiaries every so often, especially after big life changes like marriage, divorce, or the birth of a child. It’s a quick update with your IRA custodian or financial institution, but it makes a world of difference. Just keep in mind that your beneficiary designations usually override your will, so double-checking this can give you peace of mind, knowing your assets will go to the right people when it matters most.
