The world of finance and retirement can be confusing for the average passerby. So it’s no small wonder that many half-truths and misinterpretations about retirement investments have been accepted as gospel.
To help you become a better long-term investor, we’ve compiled some of the common IRA myths, along with some advice on what to do instead:
The IRS doesn’t let you contribute to a 401(k), Roth IRA and a Traditional IRA in the same year.
While the IRS does have plenty of limitations on what you can’t do tax-wise, this isn’t one of them. You still can have the option to invest in all three at once.
In fact, it’s usually a smart move to do so. Each of these investments has their own, separate maximum contribution. For instance, you’re allowed to contribute $18,000 to a 401k in 2017, and it doesn’t affect the amount you put into your IRA(s). Prudent retirement investors often couple these maximum contributions to fully utilize that tax advantages of these investments.
When you’re nearing retirement, ignoring this myth and contributing to all three becomes even more important. Each of these investments allow for their own set of catch-up contributions; that is, after you turn 50 your maximum annual contribution increases.
It’s fine to withdraw from IRAs before you retire
While you can withdraw from your IRAs before age 59.5, it can come with some hefty penalties and consequences. If you make a distribution that isn’t qualified (i.e. before this age and not for very special circumstances) you’re subject to an additional 10 percent tax penalty. Additionally, you’ll miss out on all the tax-free growth your wealth could’ve enjoyed during that time in the markets.
After you make a certain amount, you can’t contribute to IRAs anymore
It’s true that you can’t contribute to a Roth IRA if you earn “too much” – $196,000 or more if you’re married and filing jointly or $133,000 for single filers in 2017. However, there are no income limits for contributing to a Traditional IRA.
Learn more about achieving your retirement goals
At LexION Capital, we craft bespoke retirement plans tailored to each client’s specific goals and needs. If you’d like to learn more about our personalized approach to investing, start a conversation with us today.