When it comes to retirement savings, every penny counts. Yet, there are many costly penalties. Here's how to avoid retirement land mines.
Meet requirements: At 70½ you must take Required Minimum Distributions from your retirement accounts. Miss and pay dearly. "The IRS assessment would be a massive 50 percent hit on the amount of missed distribution," warns Matthew Senicola, a registered representative with JHS Capital Advisors in Massapequa.
Avoid the drama by setting up automatic payment for RMDs. Or take them out of the equation by converting to a Roth IRA, which does not have RMDs during your lifetime, says Michael Sangirardi, an Ameriprise financial adviser in Manhattan.
Too much of a good thing is bad: Saving too much can backfire. For example, if you contribute too much to your IRA, you're subject to a 6 percent penalty on the excess amount contributed. Know the limits. In 2014 it's $5,500, or $6,500 if you're 50 or older. If you over-contribute, remove the excess, and any growth attributable to it, before filing taxes, says Nina Benton, a certified financial planner with Prudential Financial in Newark.
Early bird doesn't get the worm: You want to start saving for retirement as early as possible, but don't withdraw early, says Jonathan Gassman, CPA and founder of The Gassman Financial Group in Manhattan. While the IRS cuts you slack in certain hardship situations, generally, tapping retirement accounts before age 59½ will mean a 10 percent penalty, plus income taxes.