Summary: Denise Appleby shared common IRA mistakes and tips to avoid costly errors.

When it comes to individual retirement accounts (IRAs), errors can be costly for the roughly 58 million US households who own them. Denise Appleby shared common pitfalls on Decoding Retirement, including overlooking IRS Form 5498’s crucial information on IRA activity. Even a small mistake could lead to unexpected taxes or penalties.

One highlighted mistake involved a woman who unintentionally converted her traditional IRA to a Roth IRA, resulting in a potentially massive tax liability. Checking Form 5498’s Box 7 to verify account type can help prevent such errors. Appleby recommends conducting a yearly self-audit to catch costly mistakes before they escalate.

For those 73 or older, understanding required minimum distributions (RMDs) is crucial. Using the wrong IRS life expectancy table or misstating your balance can lead to errors, even if the custodian made mistakes. Appleby advises verifying RMD accuracy to avoid penalties and potential tax bracket bumps.

If you miss your RMD deadline, you could face a 25% excise tax. However, you may be able to reduce this penalty to 10% by taking the distribution during a correction window. In some cases, the IRS may waive the penalty entirely, especially if the oversight was due to a reasonable error.

Rollovers from retirement accounts must be done carefully to avoid mistakes. Always confirm the destination account type before transferring funds, as unintentional conversions can occur. Checking your 401(k) for after-tax contributions or securities can offer strategic planning opportunities if handled correctly.

If you miss the 60-day rollover deadline, you still have options to correct the mistake without taxation. Appleby recommends using the self-certification process if the error was beyond your control. Acting promptly and meeting the requirements are key to avoiding tax consequences.

Appleby shared that even multiyear RMD errors can be forgiven by the IRS, with successful cases of up to 18 years of missed distributions. Filling out forms correctly is crucial, as incorrect information could lead to IRS penalties. Regular self-audits and attention to detail can help prevent costly retirement account mistakes.

Read more at Yahoo Finance: How to catch the costliest retirement account mistakes