Protecting Your IRA Investments

Usually our worst enemy when it comes to investing is ourselves. Protecting our IRA investments usually comes down to leaving it invested instead of tapping it for a new home, vacation or child's education. After you've made the decision to leave your IRA investments for retirement, you can protect them by considering the following:

• Investment Selections. You should consider holding a portion of your portfolio in bonds in your IRA. Bonds produce higher rates of taxable income, while stocks typically generate much less income and that dividend income is taxed at a much lower rate—generally 15%. Since IRAs are tax protected this will reduce your tax burden while providing a well-diversified portfolio.
• Account Overload. If you are like the average American, you likely change jobs about every four years. This can turn into a high number of old 401k accounts. You should consolidate these accounts into one or two high quality IRA accounts.
• Taxes and Penalties. Be sure when rolling over old 401k accounts to deposit the proceeds into the new IRA account within 60 days. Any longer and the money will be subject to taxes and penalties.

Early withdrawal of 401k investments is taxed at the worker's marginal tax rate (say 30%) and a 10% penalty is also tacked on. Loans from a 401k have a typical interest rate of 7% and the interest paid goes back into the account. But, if you leave the job, the entire loan must be paid in full or it will be treated as an early distribution subject to the taxes and penalties mentioned earlier.

You should be sure the check out the investment "pecking order" in the second resource listed below. Briefly, the rank of where to put retirement savings should be in the following order: 1) Employer plan with a match, 2) Roth IRA, 3) Employer plan without a match, 4) Traditional IRA, 5) Taxable investment, 6) Annuity. This retirement savings order prioritization maximizes the return and minimizes taxes and commissions.

After you've set up your IRA investments with the maximum contributions and safe investments, you might consider alternative investments, such as real estate or high quality gold, silver or platinum. Be aware that not every broker or IRA trustee will be able to help invest in these alternatives. Also you should consider that not all alternative investments are easy to sell, which can cause problems.