Roth IRA’s can be an excellent retirement saving vehicle. Roth IRAs allow you to save $5,500 per year towards retirement if you are under 50. People who are 50 or older can contribute a “catch-up” contribution of $1,000 each year for a total Roth IRA contribution limit of $6,500 per year.
Unlike Traditional IRA’s and other tax-deferred retirement accounts, the Roth IRA allows you to contribute after-tax money. Contributing money that has already been taxed is beneficial because the IRS allows you to withdraw the money, and its accumulations, tax-free.
The research on investor performance is clear. The average mutual fund investor tends to have worse returns than the average mutual fund. Behavioral factors have a lot do with this. People tend to be emotional, and can often react in precisely the most incorrect way possible when markets are volatile. Fear often causes investors to sell investments when they are down. Performance chasing is another notable behavior. Heard a lot about the latest mutual fund that is performing so well? That’s probably not the time to buy it, yet many are tempted.
However, it isn’t always investor behavior that drives a departure from their own returns and that of the investments they hold. Often, it’s simply a mathematical function of the way so many of us save for retirement. In fact, employing a systematic saving strategy can have the opposite affect of a bad timing decision and amplify the investors return.
When someone passes away leaving money in a traditional IRA, the money will go to whomever is listed as the beneficiary of the retirement account. That is simple enough, and is accomplished by writing names in the appropriate blocks on the IRA form. Done.
However, what is the person that inherits the account supposed to do with the money they have received from the unfortunate death of a loved one?
The answer depends on your relationship to the deceased owner of the retirement account. The IRS rules lay out two paths to follow. One path is for the still-living spouse of the deceased account owner… the spousal beneficiary. The other is for everyone else… non-spousal beneficiaries.