3 Common IRA Mistakes and How to Avoid Them

Individual Retirement Accounts, or IRAs, are a common tool in helping people have a financially comfortable retirement. However, many make mistakes with IRA accounts that can have costly consequences in the future. If you’re looking for a credit union IRA, here are some common pitfalls to avoid if you want to retire with confidence.

Not Understanding Contribution Limits

IRA accounts have contribution limits or the annual amount you can deposit throughout your life until retirement age. Exceeding these limits can have consequences.

Excess contributions will be taxed at 6% unless you withdraw the contribution before the tax return deadline.

To stay within the limits, it’s important to understand that they are changed by the IRS yearly. Keep tabs on your earnings over time to make contributions when necessary while considering annual limits. You can learn more about contribution limits from the IRS here.

Making Early Withdrawals

Of course, credit union IRA account funds are meant to be used around retirement age. But there can be unforeseen circumstances that warrant an early withdrawal. You can make early withdrawals on an IRA before age 59½, but they often result in a 10% tax on top of regular income tax. This could have an immediate impact on your current finances and set back your IRA’s growth.

If you need funds to cover unexpected expenses, the IRS does provide hardship distributions but consider alternatives like personal loans or fast funds loans from Cyprus Credit Union.

Neglecting Required Minimum Distributions (RMDs)

Required minimum distributions (RMDs) are the minimum annual withdrawals you can make when you reach age 73. These rules exist to prevent tax-deferred wealth accumulation and ensure the tax liability is paid.

RMDs have a deadline for withdrawals, which is April 1^st of the year after you reach the qualifying age and December 31 for each subsequent year. Missing this deadline could result in a 25% penalty, or 10% if corrected within two years.

To manage your RMDs, use the IRS worksheets to calculate your withdrawal amounts.

Prepare for Retirement with a Credit Union IRA Account

An IRA account, whether Traditional or Roth, is a powerful tool to boost your retirement funds. Cyprus Credit Union’s IRA account experts can help you find the right plan for your needs. Work with us and build your ideal retirement strategy today! Get started here.