Roth IRA mistakes to avoid
A Roth IRA is an excellent retirement account, but just like with any tool, the more you know how to use it, the better it can work for you. Here are some common Roth IRA mistakes to avoid, so that you make the most out of the account.
You don’t want to simply open a Roth IRA and let the funds sit there. You need to have those funds invested. If you don’t allocate the money — using them to buy stocks, bonds, funds or ETFs, for example — the money will miss out on tax-free growth via compound interest. As CNBC notes, the younger you are, the more risk you want to take on. As you get closer to retirement, you might want to rebalance your portfolio for less risk.
Contributing Too Much
Believe it or not, you can contribute too much to a Roth IRA. If you’re under 50, the maximum you can contribute to your account for 2022 is $6,000. If you go over that amount, you’ll get hit with a six percent tax on those extra funds every year until you correct the mistake.
Settling for a 401(k)
If you have a 401(k), you might think you’re all set for retirement. Well, when it comes to saving for your golden years, the more money that you’ve been able to save over time the merrier. That’s why if you’re eligible and still have money to make a contribution, you should also open a Roth IRA. The Roth and the 401(k) are a great retirement savings tandem. Fund both of these accounts properly and you’ll set yourself up for retirement success.
Content by Savvy Money