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Commonly Made IRA Mistakes

Business BankingFor most Americans, their IRA represents a bulk of their retirement fund. With such a dependence on this account, it’s important to know how to manage your IRA account, while also taking advantage of any loopholes to get the most out of your money. Here are five commonly made IRA mistakes we bet you don’t even know you’re making.

  1. Never assume you can’t have an IRA because of your employer plan

While some employer-sponsored plans limit you from also having an IRA, this is not always the case. For most plans, you are allowed to have both an employer-sponsored retirement plan and an IRA up to a certain income limit. Make sure you do thorough research, as well as talk with your Human Resources Department about your specific plan before completely ruling out an IRA.

“You can definitely have an IRA even though you are an active participant in an employer plan, and it’s a great way of supplementing the benefits you’ll derive from the employer plan,” explains Two Rivers Bank & Trust VP & Trust Officer John Walz.

  1. Not making a contribution because it isn’t tax deductible

Even if your income is too high to make tax-deductible IRA contributions, you should still make contributions. Even if your savings is not tax deductible, investment earnings in your IRA will still be tax-deferred, which means that your funds will accumulate tax-free until you withdraw them from your account. Bottom line, tax deductible contributions are important, but tax deferral wins every time.

  1. Not listing your beneficiaries correctly

Some people forget to change beneficiaries when they get married, divorced or inherit an IRA. Not properly listing your beneficiaries, or not keeping your beneficiary information up-to-date, can cause a major hiccup for you down the road. Talk with your financial advisor to find out if your beneficiary information is correct, and nail down any issues in your information before you encounter a problem. Don’t forget to ensure your backup beneficiary is up-to-date, too!

“Many people forget to list their beneficiaries correctly, or go through life changes where they forget to change the beneficiary listed on their account,” explains Walz. “However, some states have statutes that deactivate your beneficiary designation in certain situations. For example, if you get divorced in the state of Iowa, the state automatically removes your former spouse as your beneficiary.”

  1. Paying unnecessary penalties on withdrawals

In general, you should only take money out of your IRA in the event of an emergency. While you can technically take money out of your account whenever you need, if you’re under the age of 59-and-a-half, this decision could cost you. If you’re older than 59-and-a-half, you can usually make penalty-free withdrawals, also known as qualified distributions, from an IRA—but you will still owe the income tax on your withdrawal if it’s a traditional IRA.

“The money in your IRA is set aside for retirement, and should be saved for retirement,” explains Walz. “If you’re in a situation where you need money desperately, there are exceptions to penalties on withdrawals. For example, if you’re unemployed, you can pay your health insurance premiums from your IRA with no penalty.”

  1. Not taking advantage of increased contribution limits

Make sure to max out the money you deposit in your IRA by taking advantage of increased contribution limits for each age bracket. For 2016, your total contributions to all of your traditional and Roth IRAs cannot be more than $5,500, or $6,500 if you’re older than 50. These contribution limits do not apply to rollover contributions or qualified reservist repayments. Get the most out of your money by making the maximum contributions each year—your future self will thank you.


For additional questions regarding your IRA, feel free to reach out to one of the financial advisors available at Two Rivers Bank & Trust—your neighborhood bank! Contact us today.