Planning for retirement can be stressful enough but worrying about keeping your toes in line while doing it can make a situation even tenser. Constantly worrying about doing the right thing, selecting the correct investments, and keeping everything by the book can be challenging.
As overwhelming as these tasks may seem, IRA investment doesn’t have to be so complicated. In fact, there are plenty of easy-to-follow rules in place. All it takes is a little researching, some sound financial advice, and a little patience. Here are seven reasons why you need to stop stressing about IRA investment rules.
1. There’s A Clear List Of What You Can’t Invest In.
With self-directed investing, you have plenty of options open to you. From the traditional stocks, bonds, and mutual funds to real estate and precious metals, there are many avenues you can explore. While there’s no definitive list of items that you can invest in, there is a solid list of items that are off-limits.
The IRS has a clear list of prohibited items you cannot invest in, including life insurance, collectibles like rugs, antiques, gems, stamps, coins, most metals, alcoholic beverages, and other tangible property. By steering clear of what isn’t allowed, you can easily bypass any issues when it comes to your investments.
2. Contribution Limits Are Set Per Year.
Whether you have a traditional or Roth IRA, both investments have a maximum annual contribution. It’s just part of the IRA investment rules. What’s more, that number won’t change during the year. Of course, other rules apply depending on which IRA you select. However, the standard limit for either is the same. For both, the limit is $6,000 per year, with a catch-up amount of $7,000 for those 50 and older.
If you should choose a traditional IRA, your contributions will grow tax-deferred over time. On the other hand, if you settle on a Roth IRA, your contributions are taxed upfront and will experience tax-free growth. For either, it’s important to stick within the limits and make proper contributions so you can build your nest egg.
3. Disqualified Individuals Are Very Clearly Defined.
Another easy pitfall to avoid is dealing with disqualified individuals. The IRS makes it pretty clear who cannot benefit from your retirement fund or savings. These individuals can possibly stand to benefit from your retirement fund. They include family members, such as your parents, grandparents, your children, your children’s spouses, and your grandchildren and their spouses.
This list also includes anyone working with your account like an IRA custodian or a financial advisor. There’s a definitive list of off-limits individuals, so the best way to abide by this rule is to avoid doing business with them.
4. Know That You Can’t Benefit Now If You Want To Benefit Later.
As you start to save, keep this in mind: this is a fund for your retirement. Any contributions made and any investments put in will be prepping for your golden years. However, if your plan ends up benefiting you now, say by using a vacation rental owned by your IRA, that could mean trouble for your savings. This process is called “self-dealing” and it can be easily sidestepped.
Avoid any obvious traps like putting your own money into your IRA owned property or investing in a business in which you own a high percentage. In addition, don’t try to use any of your IRA investments, no matter how tempting that beach property may be. If you are unsure of whether you could do something, perform your due diligence and ask a financial advisor for clarification. As always, better safe than sorry.
5. Distribution Information Is Upfront.
If you are worried about distributions, there’s no need. Once you put in regular contributions and build up a healthy sum when it comes to distributions in your retirement it all comes down to the type of IRA you selected.
With traditional IRAs, you will be taxed on your distributions based on your tax bracket at the time of your retirement. You will also need to take required minimum distributions (RMDs) when you reach 70 ½.
With Roth IRAs, your distributions when you reach retirement will be tax-free. Additionally, you will not be forced to take RMDs. Before selecting your IRA, it’s best to plan ahead and choose the IRA that best fits your retirement plan. And always remember these IRA investment rules.
6. If You Aren’t Sure, You Can Always Ask.
The best way to keep peace of mind is to perform due diligence and do the research. The rules are simple, but they can be interpreted in different ways.
To avoid any confusion, you can take the time to break down each rule and ask questions about what you don’t understand. If you speak to a financial advisor, you can avoid any possible issues and focus on growing your retirement. A little advice and industry knowledge can go a long way. The best way to keep on top is to stay informed.
7. The Rules Don’t Change Out Of Nowhere.
You don’t have to worry about the rules suddenly changing and leaving you in a lurch. If changes do happen, they usually occur at the beginning of the year, and you will know well ahead of time.
Also, the IRS will be very clear should any investments or disqualified individuals should be added to the list. Again, if you are unsure, you can always ask your financial advisor to clear up any gray areas.
Setting up and maintaining your IRA doesn’t have to be a nightmare. Perform your due diligence and seek the proper advice to build your nest egg worry-free. The rules are available to you. Take the steps, avoid the pitfalls, and have patience and you can build a successful retirement fund, no stress required.