Think you know everything you need to know about your IRA’s and 401K’s? Well, think again! If you’re doing retirement or estate planning, there are a lot of hidden traps out there. And you’d better know how to avoid them if you want your retirement to be a happy one!
It’s not enough just to save for your retirement in a 401K. It’s also important to know how to withdraw the money. How to keep as much of it as possible. And how to pay as little in taxes and penalties as possible.
- These days, of course, there’s no such thing as a job-for-life. Sometimes we all have to move on to greener employment pastures, voluntarily or not. But, if you can, try not to leave your company until you’re fully vested. Otherwise, you might lose thousands of dollars in matching funds.
- At retirement, make sure your employer does a direct rollover into an IRA…or the “break in the action” can cost you up to 20% in taxes.
- IRAs can often provide more investment options than 401K’s. But, nonetheless, check to see if keeping your 401K with your employer allows for investment opportunities you wouldn’t have otherwise. And – whatever you do – don’t forget to diversify!
- You must take your first distribution by April 1st of the year you turn 70 ½ (if this doesn’t make sense, remember – this is the government!). This means that (depending on when your birthday is) you may need to take two distributions in your first year. And it means, too, that if you’re supposed to do this, failure to do so will incur a substantial penalty.
- If at all possible, avoid early withdrawals; withdrawals before 55 incur large penalties. Once you’ve rolled this over into an IRA, there are still withdrawal penalties. But there are also some exceptions…and you might be able to take advantage of them
- If the bulk of your assets are in a 401 K or IRA, it’s much trickier to do estate and long-term-care planning. So it’s vital that you review your estate and long-term-care planning needs early in retirement…before you make a mistake that can come back to haunt you the rest of your life.
If the bulk of your assets are in these items, you may be
walking on a very slippery slope!
If you’re not proactive – and don’t do your planning early – you could end up falling over the edge!