Avoid These 10 Common IRA Mistakes

While individual retirement accounts (IRAs) are beloved by many investors, they do come with many complexities that—if ignored—can prove very costly. With this in mind, here are some common mistakes you’ll want to avoid making with respect to your IRA.

Not knowing the difference between a Roth and traditional IRA

Several types of IRAs all work a little differently, especially when examining each one from a tax perspective and developing an income strategy for retirement. Need a refresher on the differences between a traditional and Roth IRA? Keep reading. If not, feel free to skip ahead to the next section.

A traditional IRA is a tax-deferred investment account, meaning you pay taxes on a future date, any contributions you make are typically funded with pre-tax dollars, and earnings grow tax-deferred until you withdraw them in retirement. 

With a Roth IRA, meanwhile, you make contributions using after-tax money. Money then grows tax-free, and you don't pay taxes on withdrawals made during retirement—provided you’ve owned the account for at least five years.

Not knowing Roth IRA eligibility rules

While you can contribute to a traditional IRA regardless of how much money you earn, this isn’t the case with a Roth IRA.

Single filers with a modified adjusted gross income (MAGI) exceeding $165,000 in 2025 aren't eligible to contribute to a Roth IRA. Moreover, those whose MAGI exceeds $150,000 but is less than $165,000 can only contribute a reduced amount (with people who earn $150,000 or less in 2025 able to do so for the full amount).

For joint filers, meanwhile, the maximum MAGI limit is $246,000 based on contribution qualifications. Those with a joint MAGI exceeding $236,000 but less than $246,000 see a reduction in their maximum allowed annual contribution, and couples who earn less than $236,000 can contribute the full $7,000 to their account.

Higher-income earners (exceeding these income thresholds) can still contribute to a Roth IRA but must do so through an IRS-approved method referred to as a “backdoor IRA.” There are several ways to create this, each of which requires converting a portion of (or all) traditional IRA funds to a Roth.

Not knowing IRA early withdrawal fees

Roth IRAs allow you to withdraw sums equivalent to the amount contributed at any time, for any reason, tax-free, and without penalty—even before age 59½. However, those who want to withdraw from the earnings or profit portion of their account and are younger than 59½ will incur a 10% early withdrawal penalty and pay taxes on these earnings (click here to read about exceptions to this rule).

Those who make an early withdrawal (prior to age 59½) from a traditional IRA, meanwhile, will not only pay income tax on that amount but also incur a 10% penalty on the same (as with Roth IRAs, exceptions to early withdrawal penalties exist for traditional IRAs as well).

Not saving enough or over contributing to an IRA

For 2025, the IRS will allow contributions of up to $7,000 annually for a Roth or traditional IRA—for all IRAs combined, not per account. The ideal savings amount ultimately depends on one's own personal financial situation, but IRAs generally represent a solid retirement savings strategy overall.

Alternatively, those who end up contributing more than this amount (e.g., due to a pay increase or funding multiple IRAs) could face a 6% penalty on the excess until the error is fixed.

Not taking advantage of catch-up contributions

If you’re at least 50 years of age, the IRS allows you to make contributions above standard limits to your 401(k) and IRAs—referred to as “catch-up contributions.” For 2025, these limits are an additional $7,500 per year for 401(k)s and $1,000 for IRAs: or a total of $8,500 if you have both accounts.

Additionally, thanks to the passing of the Secure Act 2.0, workers aged 60 to 63 can now boost annual 401(k) catch-up contributions to $11,250—giving them the means to save even more for retirement.

If it makes sense for your overall plan, you should take advantage of these benefits. Even if you save an extra $3,000 a year ($250 a month) for 15 years and average just a 4% return (much lower than the average S&P 500 return over the last decade), for example, you’d accumulate more than $61,000 in additional retirement savings.

Not updating IRA beneficiaries

Various life events such as marriage, divorce, and/or the death of a loved one call on account holders to review their IRA beneficiaries, which is notably important as retirement account beneficiaries generally supersede anyone named in one's will.

Not knowing the difference between a direct and indirect rollover

If you change jobs and want to roll over your 401(k) into an IRA or transfer funds from a traditional IRA into a Roth IRA (per a Roth conversion), be sure to familiarize yourself with key differences between a direct and indirect rollover.

A direct rollover is the simplest and oft-recommended way to move retirement money whereby your 401(k) or IRA administrator sends funds directly to your new IRA account without any need for you to touch the money.

On the other hand, an indirect rollover—also known as a “60-day rollover”—gives you physical custody of the funds (minus any amount your employer or provider withholds for the IRS) and a check for you to deposit. In this scenario, you can use the money for any purpose for 60 days but will need to redeposit the funds (including any amount withheld) into a new IRA by the end of the 60-day period to avoid paying income tax and a 10% early withdrawal penalty (assuming you're under the age of 59½)—which is precisely why indirect rollovers are usually only recommended if you need to urgently use the money and can execute this transaction within a 60-day window in the absence of risk.

Not contributing on behalf of a non-working spouse

The IRS allows a working spouse to make IRA contributions on behalf of a marriage partner who brings in no (or very modest) income: a provision known as a “spousal IRA.”

By no means a special type of account, this is instead just your typical Roth or traditional IRA that’s subject to identical contribution limits, income limits, catch-up contributions, and other rules. The sole difference? The non-working spouse opens the account in his or her name, with a few distinct eligibility requirements.

Failing to withdraw inherited IRA money

Generally speaking, designated inherited IRA beneficiaries must follow the ten-year rule that states one must liquidate the account by the end of the 10th year following the IRA owner’s year of death. After the 10th year, any remaining account funds must be withdrawn and the account closed. During that decade, meanwhile, beneficiaries can take distributions of any amount and at any frequency. Know that a failure to withdraw the money within the mandated timeline can result in a significant IRS penalty of up to 50% of funds marked for withdrawal.

Not knowing about the penalty for failing to take RMDs

Required minimum distributions (RMDs) are the minimum amount of money one must withdraw from a specific tax-deferred retirement account—such as a traditional IRA—beginning at age 73 (climbing to age 75 in 2033).

You must take your first RMD no later than April 1 of the year after reaching the required age. For example, those who turn 73 in 2025 must take their first RMD no later than April 1, 2026 (and then by December 31 for all subsequent years).

A failure to take the full amount by the required deadline could result in a hefty penalty summoning a 25% tax (10% if you correct the issue in a timely fashion) on the amount not withdrawn.

In sum: avoiding IRA mistakes

Currently contributing to an IRA? You’re probably off to a good start! However, you can do even better by avoiding the common IRA mistakes discussed in this article

Have questions about IRAs? Schedule a FREE discovery call with one of our CFP® professionals to get them answered.

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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business. All examples are hypothetical and are not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.