Back when a majority of workers were covered by employer-sponsored defined benefit retirement plans, retirement planning was practically done on auto-pilot. A person simply worked at their job until they reached a particular age, or put in a certain number of years of service with their employer, then they retired.
Since these plans were usually pensions that paid the worker a certain monthly income for the rest of their life, the worker would never have to worry about whether they had saved enough for retirement – they knew exactly how much they could expect to receive in benefits each month.
Today, most of us know that we won’t be able to rely on any employer pensions to fund our retirements. We are in charge of our own retirement savings and our retirement futures. With a self-directed IRA from a custodian such as Quest Trust Company you’ll have the greatest number of investment options available to help you meet your goals.
But along with the increased number of investment opportunities, you’ll need to remain vigilant that you’re making the best investment decisions, particularly in light of the always changing rules surrounding IRAs. Here are some tips for staying on top of your self-directed IRA.
Stay on Top of Changes to the Tax Laws. Don’t assume that the planning you did or the assumptions you made with respect to your retirement plan just a year or two ago are necessarily true today. You’ll make a long term plan, but how you implement that plan each year along the way will likely change from year to year.
Income Limits. The income limits applicable to IRAs govern whether your contribution will be tax deductible (in the case of a traditional IRA, if you are also covered by a 401(k) or similar plan at work), or whether you’ll be able to make a contribution at all (in the case of a Roth IRA). These income limits change over time, and each time they change you may decide to adjust your retirement savings strategy accordingly.
Maximum Annual Contribution. For 2012, the maximum annual contribution to an IRA is $5,000 (or $6,000 if you are age 50 or older). These contribution limits have been increasing over time, and you will almost always want to contribute the maximum to your account each year, so make sure you know the limit amount each and every year. Note that the extra $1,000 “catch up” provision currently applies only to account holders age 50 and up, but it’s quite possible that this age trigger, as well as the amount of the additional “catch up” contribution, will change over time.
Early Withdrawal Provisions. The current rules on IRAs include certain circumstances in which you can withdraw money from your account before retirement, but not have to pay the early withdrawal penalty. While it’s never a good idea to voluntarily forgo the tax-free compounding and growth that an IRA can offer, make sure you always understand the options that are available to you.
Having an expert custodian like Quest Trust Company can go a long way to making sure that you’re making the right decisions with your account.