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When planning for retirement, you need to consider the different types of accounts and be strategic about funding them. For many individuals, opening both traditional and Roth accounts helps save money by diversifying income in retirement, which can be critical for minimizing tax burden.

With a traditional individual retirement accounts (IRA), contributions are tax-deductible. Further, earnings grow tax-deferred. However, you pay taxes on the money when you make withdrawals in retirement.

A Roth account is the opposite. Contributions are made with post-tax money. In retirement, however, distributions are not considered taxable income. Also, Roth accounts do not have required minimum distributions like traditional IRAs. The distribution requirement starts at age 72 and depends on the amount saved.

Roth IRAs give retirees more flexibility, but it is possible to make mistakes, some of which can be costly. Here are five mistakes to avoid when funding a Roth account:

Mistake #1: Contributing to a Roth when you are earning too much or too little.

Prior to investing in a Roth IRA, you should understand the specific rules about contributions, which depend on income. First, you cannot contribute more to a Roth IRA than you have in earned income in a given year.

Second, Roth IRA eligibility depends on modified adjusted gross income (MAGI). As of 2020, when your income exceeds $124,000 as a single person or $196,000 as a married couple, allowable contribution amounts begin to be reduced. The ability to contribute to a Roth IRA is eliminated completely at $139,000 for a single person and $206,000 for a married couple.

The IRS sometimes changes these earnings thresholds, so it is important to stay current with tax rules. An important exception to the above rules is a non-working spouse. In this case, the working spouse can also fund a Roth IRA for the non-working one, which essentially doubles the amount that can be saved.

Mistake #2: Putting too much money in a Roth IRA.

As outlined above, the amount that can be contributed to a Roth IRA is dictated by income. Outside of these rules, the current annual limit on contributions is $6,000 ($7,000 for people 50 or over). Importantly, these contribution limits are for all IRAs in your name, not just Roth accounts.

Exceeding the limits will trigger a 6-percent penalty on the excess. If you realize you have contributed too much prior to filing taxes, you can take the excess out of the account to avoid the penalty. In fact, you can withdraw part or all of Roth IRA contributions up to six months after filing your tax return, provided that an amended return is created.

You can also carry over excess contributions to a different tax year. However, it is important to make sure paperwork is in order to avoid triggering an unexpected penalty.

Mistake #3: Failing to take advantage of the backdoor Roth IRA.

People who make too much money to contribute to a Roth IRA can still take advantage of this type of account through a loophole. The so-called “backdoor” Roth IRA involves contributing to a nondeductible IRA, a type of account that is available to anyone regardless of income level since it is funded with after-tax dollars. Then, that account can be converted into a Roth IRA.

Importantly, the conversion should take place before the account has earnings, or you could face tax complications. Most people open a low-earning nondeductible IRA to minimize the chances of earning money prior to the conversion. Traditional IRAs and 401(k)s can also be converted, but you will need to pay tax based on current earnings.

Mistake #4: Ignoring a Roth IRA because of other accounts.

People who have 401(k)s or even traditional IRAs may not feel like they need yet another account. However, this belief ignores the real benefit of this type of account. If you are an employee who has already taken full advantage of matching contributions on a 401(k), Roth IRAs are a great investment.

The reason to invest in a Roth is that it can reduce tax liability in retirement, since withdrawals are not taxed and there are no required minimum distributions. In years when you are close to passing into a higher tax bracket, you can use distributions from your Roth accounts to make ends meet and keep your tax bill low. Then, in years when you are not close to this threshold, you can leave the Roth account alone to continue growing in a tax-advantaged manner.

Mistake #5: Breaking the rules about rollovers.

The rules about rollovers changed fairly recently, so you need to make sure you are not doing anything that will result in a penalty. Formerly, you could do an IRA rollover once in a calendar year, but now the IRS restricts this process to once every 365 days. Rollovers can trigger a massive tax bill, so it is critical to make sure 365 days have passed rather than it simply being a new year.

Also, some exceptions exist, such as 60-day rollovers from traditional to Roth IRAs. When executing a rollover from one account to another, individuals can do so directly or indirectly. With a direct rollover, the money is transferred directly from one account to the other.

An indirect transfer involves the account holder taking physical possession of the money in the form of a check and depositing it into the new account. This approach is dangerous, since there is a 60-day deadline and issues can arise. Direct rollovers are more foolproof.