Five Retirement Account Mistakes You Should Avoid

Last Saturday, Suze Orman, author, financial advisor and motivational speaker, explained, in her CNBC show, the five biggest mistakes one can make with his/her retirement account. Before getting her own show, The Suze Orman Show, in 2002, Mrs. Orman worked as a financial advisor for Merrill Lynch, as the vice-president of investments at Prudential Bache Securities, and founded the Suze Orman Financial Group. So, let’s take a closer look at this specialist’s advise regarding retirement accounts.

Retirement funds have become more important than ever before. “The day of getting a pension, the day of the Corporations taking care of you and paying for health insurancethey’re gone!” the anchorwoman assures (CNBC). “You, and you alone, are going to be responsible for your own future,” and the only place you’ll be able to get that money from, once you’re retired, is from your retirement account. Given this situation, Mrs. Orman provides a few tips on how to preserve the money in your accounts. These are the five mistakes you should avoid:

1) Not contributing to a 401(k) that has a matching contribution, as this would mean passing up free money (no further explanation seems necessary… never pass up free money!)

2) “Not taking advantage of a Roth 401(k) and a Roth I.R.A. You want to make sure that you take advantage of the Roths and the 401(k), because you can withdraw money without penalties or taxes. You want to know that things are tax-free, so do a Roth, versus a traditional” (CNBC).

But, what is a Roth I.R.A. (individual retirement agreement)?

It is a particular type of retirement plan (in the U.S.) that is generally not taxed. Employees and self-employed individuals voluntarily contribute post-tax funds to an I.R.A. that allows tax-free growth and distribution. However, some conditions have to be met: contributions must have been invested for at least 5 years; the account owner must have reached 59 ½ years of age; and yearly contributions must not surpass $5,500 if the owner is under age 50, or $6,500 if the owner surpasses the 50 year old threshold (data for 2013).

“The Roth 401(k) combines some of the most advantageous aspects of both the 401(k) and the Roth IRA” (check full details here).

3) “Investing in a variable annuity, or bond funds, or target date funds inside a retirement account” (CNBC).

Although Mrs. Orman does not go into the reasons behind this statement, she assures that there are not wise investments and exhorts her viewers to keep away from them “like the pague.”

4) Taking a loan from a 401(k) to -let’s say- pay off debts or get some interest from your money, and then pay yourself back.

This is certainly not wise: “you are paying back pre-tax dollars with after-tax dollars. So when you go to take it out again, you’ve just volunteered for double taxation.”

5) “Taking an early withdrawal from a retirement account to solve a financial problem.” This is probably the most important tip you’ll receive regarding retirement accounts. These accounts are protected against bankruptcy. 

So, NEVER withdraw money. “Pay taxes, pay a penalty to solve a financial problem today.” Withdrawing money from your retirement account will not only, not-solve your current financial problems (most times), but will also create financial problems for the future.

Now you know what things not to do with your retirement account. But what should you do? Well, practically nothing: contribute, do not touch the money in it, wait, and enjoy retirement, when the time comes.

Watch the video below:

Disclosure: Javier Hasse holds no interest in any retirement-related institutions.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!