How to Avoid Common IRA Mistakes

15 November 2025

Individual Retirement Accounts (IRAs) are powerful tools for building wealth for your future. But let’s be honest—navigating the world of IRAs can feel like trying to assemble IKEA furniture without the instructions. One wrong turn and you might set yourself back thousands of dollars. That’s why it’s crucial to understand how to avoid common IRA mistakes—because they’re easier to make than you think.

Whether you’re opening your first IRA or you've been contributing for years, this guide is here to break down the most common slip-ups and show you how to sidestep them like a pro. Grab a cup of coffee, and let’s get into it.

What Is an IRA, Really?

Before diving into the mistakes, let’s have a quick refresher. An IRA is a tax-advantaged savings account meant to help you save for retirement. The two most popular types are:

- Traditional IRA – Contributions may be tax-deductible, and your money grows tax-deferred. You pay taxes when you withdraw at retirement.
- Roth IRA – Contributions are made with after-tax dollars, but withdrawals in retirement are tax-free (cha-ching!).

Both are great in their own ways, depending on your financial circumstances, but they also come with rules—and that’s where people tend to trip up.

Mistake #1: Missing the Contribution Deadline

First things first—don’t snooze on deadlines. You have until the tax filing deadline (usually April 15) to make contributions for the previous year. But guess what? A whole lot of people forget or wait too long.

Why it matters: Missing that deadline means missing out on a year of tax-deferred or tax-free growth. That’s like leaving free money on the table… and who wants to do that?

How to avoid it: Set a reminder in your phone or calendar. Better yet, set up automatic contributions. Treat it like a subscription—for your future.

Mistake #2: Not Knowing the Contribution Limits

Here’s the deal: Uncle Sam puts a cap on how much you can contribute to your IRA each year. For 2024, it’s $6,500 ($7,500 if you’re 50 or older). Overcontributing could land you with a 6% penalty—every year the excess remains in your account.

Common scenario: You have both a Traditional and a Roth IRA and put $6,500 into each. Oops. That’s $13,000 total, and it doesn’t fly with the IRS.

How to fix it: Stay on top of the limits. It’s a combined limit across all your IRAs, not per account.

Mistake #3: Assuming You Can Contribute No Matter What

Here’s a sneaky one—your income can actually disqualify you from contributing to a Roth IRA, or from deducting contributions to a Traditional IRA.

Roth IRA income limits for 2024:
- Single: phased out between $138,000 and $153,000
- Married filing jointly: phased out between $218,000 and $228,000

Traditional IRA deduction limits depend on whether you or your spouse are covered by a retirement plan at work.

How to avoid it: Check IRS guidelines before contributing. If you're over the limit for a Roth, consider a Backdoor Roth IRA—which is legal, but has to be done carefully.

Mistake #4: Not Naming a Beneficiary — Or Forgetting to Update It

Imagine your IRA going to your ex-spouse just because you forgot to update your beneficiary after a divorce. Yikes, right?

Why it’s important: If something happens to you, the beneficiary designation trumps your will. No updates = potential drama.

How to avoid it: Review your beneficiaries annually or after major life changes (marriage, divorce, kids, etc.). It only takes a few minutes—and can save your family a ton of heartache.

Mistake #5: Withdrawing Funds Early Without Understanding the Penalties

IRAs are for retirement. Pulling money out before age 59½? That can trigger a 10% penalty on top of regular income taxes, unless you qualify for an exception.

Common exceptions include:
- First-time home purchase (up to $10,000)
- Qualified education expenses
- Certain medical expenses
- Disability

But be careful. Not all withdrawals that "feel" justified are penalty-free.

How to avoid it: Always double-check the rules or talk to a tax advisor before taking an early withdrawal. Don’t use your IRA like a piggy bank.

Mistake #6: Failing to Take Required Minimum Distributions (RMDs)

Once you hit age 73, the IRS wants their cut. Enter RMDs—Required Minimum Distributions. Roth IRAs are off the hook here (for the original owner), but Traditional IRAs are not.

The penalty for missing an RMD? A whopping 25% of the amount you were supposed to withdraw. That’s like getting a speeding ticket for not driving.

How to prevent it: Know your RMD start date and calculate accurately. Most custodians offer calculators or can handle it for you.

Mistake #7: Rolling Over IRA Money Incorrectly

Let’s say you switch jobs and want to move your 401(k) into an IRA. Great idea! But if you accidentally take the money yourself before transferring, you’ve got 60 days to get it into the IRA—or face taxes and penalties.

One key tip: Don't take possession of the funds if you can avoid it. Use a direct trustee-to-trustee transfer.

Pro tip: You can only do one 60-day rollover per 12-month period. That rule surprises a lot of folks and burns them come tax time.

Mistake #8: Investing Too Conservatively (Or Too Aggressively)

Putting money into an IRA is just step one. What you do with it matters. Some people go ultra-safe, parking funds in money market accounts earning basically nothing. Others throw it all into high-risk stocks.

What’s the sweet spot? That depends on your age, risk tolerance, and overall financial plan.

Avoid the mistake: Diversify. Tailor your investments to your personal situation. IRAs are like gardens—they need more than just a shovel. They need care, balance, and planning.

Mistake #9: Not Reviewing Your IRA Annually

When’s the last time you reviewed your IRA? If it’s been a while, you’re definitely not alone.

Think of this like a health check-up for your finances. Your goals change. The market shifts. Tax laws evolve. An annual review ensures your IRA is still on target.

How to do it: Look over your:
- Contribution levels
- Investment performance
- Beneficiaries
- Fees

Or better yet, schedule a quick chat with a financial advisor.

Mistake #10: Ignoring Account Fees

Nobody likes fees. Even small account management or trading fees can quietly chip away at your retirement savings over decades.

What to look out for:
- Account maintenance fees
- Fund expense ratios
- Trading commissions

How to steer clear: Choose low-cost funds like index ETFs or mutual funds. And if your provider charges high maintenance fees, shop around. There are plenty of zero-fee IRA options today.

Mistake #11: Not Converting to a Roth IRA (When It Makes Sense)

Roth conversions can be a savvy tax strategy—but they’re often overlooked.

What is it? Moving money from a Traditional IRA to a Roth IRA. You’ll pay taxes now, but enjoy tax-free withdrawals later.

Great move when:
- You’re in a low tax bracket this year
- You expect higher taxes in retirement
- You want to leave a tax-free inheritance

But be warned: It’s a taxable event. Dough now for dough later—so time it wisely.

Mistake #12: Thinking an IRA Is All You Need for Retirement

Here’s the hard truth: An IRA alone probably won’t fund your entire retirement. It’s a great foundation—but think of it as one tool in your retirement toolbox.

You should also be thinking about:
- 401(k)s or 403(b)s
- Health Savings Accounts (HSAs)
- Taxable investment accounts
- Pensions or Social Security strategy

Bottom line: IRAs are awesome—but don’t put all your eggs in one basket.

Final Thoughts: Don’t Let Small Mistakes Derail Big Dreams

Saving for retirement is a marathon, not a sprint. Mistakes will happen—we’re human. But the more you understand how IRAs work, the fewer missteps you’ll make. Every contribution, every smart decision, every managed risk—it all adds up.

So take a minute to look at your own IRA today. Are you making any of these mistakes? If yes, don’t panic. Fix what you can, learn from it, and keep moving forward.

After all, your future self will thank you.