How to Avoid 3 Common IRA Rollover Errors

It's human nature. We all make mistakes from time to time. But when it's your money, even small mistakes can cost you a lot, especially when it involves Individual Retirement Accounts (IRAs). Here are three common IRA rollover errors and how to avoid them:

#1: Leaving Assets in a Former Employer's Retirement Plan
When you leave an employer, usually you have the right to roll over your entire vested balance into an IRA. Why would you want to do that? There are several reasons:

• By rolling your old retirement plan balance to an IRA, you gain access to a wider range of investment choices.
• In the event of your death, your beneficiaries may be able to take distributions over their lifetimes which would allow for a longer period of tax deferral.
• If you move your old retirement plan via a "direct rollover", you can avoid the 20% mandatory withholding for plan distributions.

You should seek the help of a qualified financial advisor to assist you in this process.

#2: Not Naming a Beneficiary
If you haven't named a beneficiary on your IRA, when you die, typically it will have to pass through your estate. Your estate may have to go through probate which can be expensive. Even worse, the entire account balance may have to be distributed to the estate by the end of the fifth year after your death. This may cause a large tax bill as well as the loss of future tax-deferred growth for your beneficiaries.

Make sure to avoid mistakes by reviewing your paperwork including beneficiary designation forms prior to starting the rollover process.

#3: Not Updating Beneficiary Designations
You may have set up your IRAs a number of years ago. Do you regularly review your beneficiary designations? Due to certain life events-such as marriage, divorce, birth of a child, or death of a beneficiary-you should regularly review your beneficiary designations. Have you updated your beneficiary designations lately? Failure to make these changes could result in your retirement assets going to the wrong people.

For many Americans, IRAs are one of the largest single assets they own. Even a small mistake can prematurely cut off the tax-deferred growth of IRAs that may be worth millions and create huge and unintended income tax bills for those who inherit them. If you are going to err, do so on the side of caution by seeking professional advice before you roll over or transfer your assets.

Kevin J Graham
About the Author: 

Kevin Graham is the Principal of Princeton Retirement Planning & Wealth Management, LLC in Princeton, NJ. Utilizing over 25 years experience in the financial services industry, Kevin assists families and individuals with their retirement needs. Kevin also assists corporate clients with their 401k retirement plans as a consultant and investment advisor. Please visit to request our complimentary brochure, "How to Avoid the Top Ten IRA Rollover Errors."

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