The Smart Way to Manage Your IRA Account to Avoid Heavy Fees

IRA accounts are set up to help you live the life you are used to when you retire. These accounts are very helpful to retirees, but they can also be filled with large fees if they are not managed correctly. Many people suffer from the high penalties simply because they were unaware of the rules that surrounded this type of retirement account. Learning the rules and regulations that pertain to your retirement account can help you keep your money for retirement, rather than paying unnecessary penalties and losing some of the money that should rightfully be yours.

High Income Earners

People that make too much money are typically not eligible for the tax breaks of an IRA account. This means that they cannot contribute to a ROTH or traditional individual retirement account, both of which offer tax savings. If this is the situation you are in, you can contribute to a nondeductible individual retirement account, which carries with it no tax benefits. Once the account is established, it can be carried over to a ROTH in order to gain the tax benefits. This does take a little time and paperwork, but you end up with a substantial savings potential when you’re done, so it makes it worth the effort.

Take Required Distributions

When you reach the age of 70 ½, the IRS requires you to take a minimum distribution on your traditional retirement accounts. If you do not take that minimum amount, you could be penalized by as much as 50 percent of your distribution. You can avoid this fee by taking the minimum distributions on time. Each on time withdrawal helps keep more money in your pocket and less being lost to unnecessary fees.

Watch your Contributions Closely

It is easy to over contribute to your retirement accounts, but if you do, you could be subjected to stiff penalties. The IRS watches the contributions closely, which means you need to do the same. Make yourself cognizant of the limits for each tax year, as they change every year, and ensure that you do not contribute more than that amount or you risk paying a 6 percent penalty on the amount that you overpay. You should take the time to plan this out at the beginning of the year and check it quarterly to ensure that you are still right in line for your contributions.

Watch your Transfers Carefully

When you rollover your retirement accounts, you have to pay careful attention to where they are going. One form completed incorrectly could have your money being placed in a regular account and you being held accountable for a large amount of taxes as a result of an “early withdrawal.” This situation can be remedied with the IRS, but it can take a lot of time, paperwork and patience.

Watch your Rollovers

You are only authorized to perform one rollover every 365 days. If you leave your job, you have a small window of opportunity to take your money out of your employer’s 401k and transfer it to an IRA. If you miss that opportunity or you perform more than one transfer every 365 days, you could lose your entire IRA, which is about the worst penalty to pay.

Use Money for Education

If you need extra financing to pay for your education, you can withdraw the money penalty free from your IRA. It is important to note that the same is not true for a company sponsored 401k. There is no penalty for this type of withdrawal from the right account, which allows you to get your education and avoid heavy fees.

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