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

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

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!