From contributions to conversions to distributions, don't fall into these traps.
By Christine Benz | 02-23-16 | 06:00 AM | Email Article

15) Triggering a Tax Bill on an IRA Rollover 
A rollover from a 401(k) to an IRA--or from one IRA to another--isn't complicated, and it should be a tax-free event. However, it's possible to trigger a tax bill and an early withdrawal penalty if you take money out of the 401(k), with the intent to do a rollover, and the money doesn't make it into the new IRA within 60 days. This article discusses how to ensure that rollovers are simple and tax-free. 

Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

16) Not Being Strategic About Required Minimum Distributions
Required minimum distributions from Traditional IRAs, which start post-age 70 1/2, are the bane of many affluent retirees' existences, triggering tax bills they'd rather not pay. But such investors can, at a minimum, take advantage of RMD season to get their portfolios back into line, selling highly appreciated shares to meet the RMDs and reducing their portfolios' risk levels at the same time. This article discusses how to use RMDs to upgrade your portfolio.

17) Not Reinvesting Unneeded RMDs 
In a related vein, retired investors might worry that those distributions will take them over their planned spending rate from their portfolios. (Required minimum distributions start well below 4% but escalate well above 6% for investors who are in their 80s.) The workaround? Invest in a Roth IRA if you have earned income or--more likely--in tax-efficient assets inside of a taxable account. This video provides tips on how to invest RMDs you don't need. 

18) Not Taking Advantage of Qualified Charitable Distributions
RMD-subject investors also miss an opportunity if they make deductible charitable contributions rather than directing their RMDs (or a portion of them) directly to charity. That's because a qualified charitable distribution (QCD)--telling your financial provider to send a portion of your RMD to the charity of your choice--reduces adjusted gross income, and that tends to have a more beneficial tax effect than taking the deduction. Congress had been in the habit of waiting until the end of each year to renew the provision allowing for QCDs, but in late 2015 it made QCDs permanently allowable.

19) Not Paying Enough Attention to Beneficiary Designations 
Beneficiary designations supersede expensive, carefully drawn-up estate plans, but many investors scratch them out with barely a thought, or make them once but don't revisit them ever again. IRA expert Ed Slott discusses considerations to bear in mind when deciding who should inherit your IRA in this video

20) Not Seeking Advice on an Inherited IRA 
Inheriting an IRA can be a wonderful thing, but it's not as simple as it sounds. The inheritor will have different options for what to do with the assets depending on his or relationship to the deceased, and can inadvertently trigger a big tax bill by tapping the IRA assets without exploring all of the options. This video includes tips for inherited IRAs, as does this article.

Mark your calendars for the 2016 Morningstar Individual Investment Conference, taking place on April 2 at 9:00 a.m. CST. At this live-streamed event, we'll cover strategies to help you strengthen your investment plan, regardless of age or investing expertise. Register for free today.

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Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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