…and there is still time to make contributions for 2016. But before we discuss contributions for 2016, let’s discuss the mistakes IRA owners want to avoid. I was reading an article written by IRA expert, Ed Slott in Investment News. His article was aimed at advisors helping millennials avoid common mistakes.
Among the mistakes Mr. Slott outlines, not having a Roth IRA is first and foremost. Since it is unlikely millennials will retire with a pension, it is more and more important to take steps to fund their own retirement. Mr. Slott goes on to point out that contributing to an employer sponsored plan is important, and if those contributions are pre-tax, it may benefit those clients to also contribute to a Roth IRA to have tax-free savings growing as well. I work with quite a few millennial clients, and most, if not all have opened a Roth IRA since working with me.
Mr. Slott goes on to point out that younger workers may change jobs more often, and may have accounts with several 401k’s. While it may be tempting for younger clients to tap into those funds when changing jobs, the long term impact could be tremendous. Recently, one of my millennial clients left a job where they were contributing to the 401k. They also have a Roth IRA. When talking with the client about the account with the former employer, they were adamant that they would not draw upon the 401k – and I could not have been more proud of them.
The last mistake that Mr. Slott discusses is millennial clients contributing to IRA’s for the immediate tax deduction, instead of a Roth with the long term tax-free benefit. When discussing with my millennial clients, I encourage them to contribute as much as they are able to their employer sponsored plan, then complement that with contributions to a Roth IRA.
One item that the article did not go into a great deal of detail was with respect to the investment decisions made related to the accounts of these clients. A millennial client’s best friend is time, and when there is so much time from retirement age (sometimes 40+ years) the impact of poor investment decisions can be magnified. It is crucial that younger investors not make the mistakes that will compromise the advantage of time.
Now, if you are not considered a millennial, don’t despair. Many of these strategies are viable for older clients, but it is important to consult with your advisor to determine the combination of accounts that gives you the best chance to reach your goals.
To read Mr. Slott’s article, you can find it here: http://www.investmentnews.com/article/20170214/FREE/170219948/how-to-help-millennials-avoid-big-mistakes-with-their-iras?utm_campaign=socialflow&utm_source=facebook&utm_medium=social