Common IRA Mistakes That Could Hurt Your Retirement Plan

Roth or traditional IRA? 401(k) or IRA? Tax deduction now or tax-free withdrawals later?

These are common questions when saving for retirement, but many people get stuck trying to make the “perfect” decision and end up delaying the most important step: actually saving.

In this episode of The Capitalist Investor, the crew breaks down common IRA and retirement account mistakes, including why Roth vs. traditional is not always a simple answer, how required minimum distributions can affect retirement income, why spousal IRA contributions are often overlooked, and how your 401(k) and IRA should work together instead of being treated as separate decisions.

They also discuss the importance of having money in different tax buckets, using retirement accounts strategically, and avoiding the mistake of looking at each investment account in a vacuum.

If you are building your retirement plan, reviewing your IRA, or trying to decide how your 401(k) fits into your larger financial picture, this episode will help you think through the bigger strategy.

Listen to The Capitalist Investor for conversations about retirement planning, investing, taxes, financial strategy, and the decisions that can impact your long-term financial future.


Chapters

0:00 Common IRA and retirement account mistakes
0:47 Roth vs. traditional IRA
1:32 Required minimum distributions and taxes
2:35 Why generic retirement advice can be misleading
3:55 The biggest mistake: procrastinating on saving
4:34 Why tax buckets matter in retirement
5:30 Spousal IRA contributions
6:26 Coordinating your 401(k) and IRA
7:47 Looking at retirement accounts holistically
8:38 Balancing overexposure in your portfolio
9:08 Final thoughts

Transcript

SPEAKER_03 0:00

Hello and welcome to this week's episode of the Capitalist Investor. And as always, you have me, Diamond Hands D, and we got the crew back again today, Tony the Tiger, and backed by popular demand, Dave Abate. Great to be here. We got some little more uh planning corner topics. So we'll talk about some common IRA mistakes. Uh, because you know, as we talked about uh a little bit last time, you know, common IRA mistakes that that we see out there. Well, you know what?

SPEAKER_02 0:32

I'll even take it just a little bit higher. It's like common, you know, tax deferred. You know, you you you want to have a tax-deferred account. That would be the most ideal thing you want to have. So whether it's a Roth or traditional is where you kind of start. I I like the question of, you know, or like I love the Roth. I've been investing, and I'm like, why? I don't want to pay taxes. All right. Um, but you know, like you do get a tax deduction for that contribution right now. And there's a probably a good I there's a probably a good um chance that you'll be in a lower tax bracket when you retire than when you're working. I'm gonna I'll make that assumption that's not always true, but I kind of see it because I I actually met with somebody the other day and they were telling me how upset they were that they they didn't contribute more to the Roth because now they have a million, you know, million dollar Roth uh traditional IRA and they're like, I owe taxes on every single dollar, and I'm like, I get it, right? And they're like, yeah, and then they're gonna force me to take it out when I'm 73. I'm like, yeah, I understand that too. But I'm like, how much money do you need to retire? You know, like what does your retirement look like? I need, you know, I need six grand a month. Okay, that sounds like seventy-two thousand dollars and net. Okay, well, let's take social security out of the equation. Let's call that, you know, 32 grand. So now you need $40,000 more. So what is that? Like, okay, you have your traditional, you have to take out $50,000 to to to live your life, right? You have a million dollar IRA. When when RMDs start, you have to take out 3.65% year one. If you take out 50 grand, you just took out five percent. Problem solved. You know, like like people are like, I but I owe I'm like, yeah, but you got the deduction in your highest years, and you know, I just did the math for you taking 50 grand out in Social Security, you're gonna be in probably the 10 or 12% bracket. Like, like they're the the again, we talked about this on the last episode. The you know, the the the information you sometimes capture off of the media sites like Google or even Yahoo Finance or whatever those might be, like, hey, Rob Roths are better. I get it. I really do. A nice blend is nice, but you have to understand where you are today and where you are projected to be when you retire.

SPEAKER_01 3:00

Yes, there's um pros and cons, right? For both both sides. And um, you know, there's some hidden things that a lot of people don't know about. Like, hey, there's there it's possible, right, to get that tax deduction in the traditional IRA or 401k, and then once you hit, you know, if you play with the rules, you hit age 70 and a half, you can actually make like charitable, uh qualified charitable distributions from that IRA and completely escape taxation.

SPEAKER_02 3:30

Yeah, and and uh you know, and I that's uh definitely like there's little like tax moves that we can do, but uh the biggest thing though is the Roth versus traditional when you're saving into your 401k, actually it's almost like splitting hairs, like you you know, like you're splitting hairs on the amount of money that you need to be saving because the next thing I want to talk about is don't procrastinate, just start saving, whether it's in a Roth or traditional. Like if you're not saving because you're waiting, like I don't know which one to do. I'm like, just do one. Just pick a pick a direction, and then you can sell you can reevaluate a week, a month, a year later. And then you can change it. But it was but if you don't do it, if you procrastinate, that's the biggest problem. That's the biggest problem I see, or not saving enough sometimes. So that is another common mistake. So, first of all, you know, recap one and two, you know, or first one, Roth versus traditional, could be splitting hairs, right? Uh in in the grand scheme of things. But number two is very important. You gotta you gotta save first of first and foremost, and save as much as you can forward.

SPEAKER_03 4:40

And I would say the um the the longer that that I do this and the and the more you know plans that that I do and present, uh, it's really good to have money in in all three um tax buckets. So non-qualified, uh qualified, and and tax-free. Um it that is a big advantage once once you get to there, once you get to retirement to have money in each one of those buckets because of you know, spending isn't like a smooth thing, right? Some sometimes things pop up, you know, sometimes people want in retirement, they want to pay, you know, a big chunk or the whole thing when they buy a car. So having the flexibility to have money in in all three of those tax um tax buckets is an important thing. So yeah, just saving is always going to be a good idea. That's one you don't have to Google if you if you start saving. Um that that's really the the the the first battle that you have to win.

SPEAKER_02 5:41

Yep. Um another common mistake, um, won't spend too much time on it, but like just know that if you're married, if you're married and you're married filing jointly, you can contribute for a spouse, whether they're working or not working. Um, you know, just another, you know, if you look at your finances as a household, that's just another another way to save more money. So just always remember that you can save into your IRAs uh if you're filing jointly as a married couple. Um and then the other the other fourth one is is that sometimes, and I've done this in the past, where I've looked at somebody's you know, their tools. They had a 401k and they had a traditional IRA. And I looked at the options in their 401k and they had like target funds, right? Or just very kind of I'll call them crappy mutual funds after I did an analysis of everything. And that is where if again, if we can not look at the individual accounts and how they're performing, but if we can take a look at how everything is playing together on an aggregate level, maybe I can say, man, your equity, the equities that I can invest in in your 401k stink. They've always underperformed, they're not very good. We can actually do a lot better job in your IRA with all the equities. And then I can sit there and argue and and say, like, you know, I don't know if I can pick better bonds than what you have available. Because bonds are bonds and they're not they're not the the growth engine inside of your savings, right? The stocks, the equity exposure is. So I've done it before where I'm like, hey, let's let's make your let's make your IR your your 401k, let's clip all the bonds in there. And then in your 401 or in your IRA, we put the the equity exposure. Or or maybe just have the slight equity exposure in the 401k. Find some kind of balance. I've done that before because there's a possibility that your investment options in your 401k are just so bad.

SPEAKER_01 7:54

Yeah, and I think you're hitting on it again, Tony. The importance of making decisions holistically instead of just in a vacuum. Right. Like understanding all the moving parts and the pieces on the chessboard so that when you do, you know, make a make a decision in one of the buckets, it coordinates and plays well with the other pieces and moving parts. Like that's so important.

SPEAKER_02 8:16

Yep. So diversification, uh, you know, diversification tools to your 401k. Again, get exposure to the things that you can't capture in your 401k um in your other investment accounts. You know, whether that's maybe an individual stock or or commodities, like, hey, you like gold, but I can't buy it in my 401k. Okay, use your IRA for that. Bitcoin, right? Now that we can do ETFs but your 401k won't allow it.

SPEAKER_01 8:41

Things like that. And even as simple as like the one I've been seeing lately is in the in the 401k plans, like a lot of people just have straight SP 500 index exposure. And as we all know, that thing's heavily tilted towards the growth side of things in the equity world, which is in some some people would argue has gotten very overheated. So now, how can we lean against that overexposure to growth to get you to more of a balanced situation?

SPEAKER_03 9:07

Exactly. Uh, thanks everyone for listening this week. Uh, if you guys have any questions or comments or show ideas, hit us up at info at swpconnect.com, and we'll talk to you next week.

SPEAKER_00 9:20

The opinions expressed in the podcast are for general informational purposes only and are not intended to provide specific advice or recommendations for any investment. Legal, financial, or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.