Get the most of out your IRA in 3 steps — and avoid a common investing mistake

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I work as a money coach, and for the last six years I have helped regular people learn to budget, pay off debt, and establish savings habits. I've helped people pay off medical debt, decide what to do with a divorce settlement, and create a student loan repayment plan. I'm also a personal finance writer, and everyone in my social circle knows I love answering money questions. 

A few years ago, I was at a wedding with some high school friends and we started talking about saving for retirement. My friend Melissa mentioned that she'd been contributing to an individual retirement account (IRA) for a few years but it hadn't grown much since she'd opened it. We were in a bull market at the time, so she should have seen more of a payoff.

Zina Kumok is a money coach at
Courtesy Zina Kumok

I assumed that she had invested all her money in bonds, which would explain why she hadn't seen much growth. I asked her to take a look at the account and get back to me. When we talked a few weeks later, I got a surprising answer. It turned out that, without realizing it, she hadn't been investing at all.

When you open and start contributing to an IRA, or 401(k), the money first goes to the cash portion of the account. From there, you use that money to buy stocks, bonds, or funds. Melissa had only completed the first step of that process.

Fortunately, my friend caught her misstep long before she wanted to cash out for her retirement. And I shared these three simple steps with her about how to always get the most out of your IRA.  

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Remember to reinvest when you rollover

"I always explain that investing is like an oven," says Kevin L. Matthews II, a financial planner and the founder of BuildingBread. "You can put food in the oven, but unless you turn the oven on, it's not going to do anything for you. You're still going to be hungry."

Matthews sees Melissa's issue come up more frequently with IRAs than 401(k) accounts, because 401(k)s will often automatically invest your money in a target-date fund if you don't pick anything specific. But when consumers roll their 401(k) into an IRA after leaving a company, for example, they may not realize that while the money in their 401(k) was invested, those funds have to be reinvested after rolling over into an IRA. 

You also have to be careful when rolling over money from a 401(k) to an IRA because if you take possession of it directly and don't roll it over within 60 days, you could pay a 10% penalty as well as income tax. If you have any questions during this process, if your account is offered through an employer, many workplaces have third party 401(k) representatives that you can speak to help you navigate the process.

Choose the mix of funds that is right for you

As you plan for retirement, generally, someone in their 20s will have a more aggressive investment portfolio with a larger ratio of stock funds than someone in their 40s. Personally, I have 90% of my portfolio in stock funds and 10% in bond funds. Since I'm 31 and about 30 years away from retirement, this works best for me. 

Depending on your budget and goals, there are a few ways to approach opening and maintaining an IRA. You can hire a financial planner to help you set it up and choose a mix of stock and bond funds that fit your age and retirement timeline. Financial planner rates can vary.

Depending on who you seek out, some charge a flat or hourly rate, or charge a percentage based on the money they are helping you manage.  

Investing is like an oven. You can put food in the oven, but unless you turn the oven on, it's not going to do anything for you.
Kevin L. Matthews II
Financial planner and the founder of Building Bread

Another option is a robo-advisor, an algorithm-driven investment service that selects funds automatically based on your age and retirement goals. Many will recommend how much to invest ever month and automatically rebalance your portfolio. Robo-advisors will also generally charge a percentage of the money you're investing, usually about 0.5% of the assets under management or less.

With either of those options, or if you decide to use a big brokerage firm, make sure you understand all the fees you are being charged as part of your investment strategy. 

Set up a calendar alert 

No matter where you open an IRA, make sure to check it at least once a month. If you see anything odd, like a balance that seems lower than expected or a contribution that didn't go through, call the provider and ask them for clarification. Even if you are new to investing, if something seems off, trust your gut. You know more than you think. 

My friend was ultimately able to make up the difference by choosing a new account with a higher rate of return, continuing to contribute the maximum, educating herself about the ins and outs of investing, and setting regular reminders to check on the status of the account.

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As a rule, I tell my coaching clients to make investing for retirement a priority by putting at least 10% of their income toward retirement if they can. And if they have a 401(k) matching program at work, I recommend that they save enough to receive the employer contributions. 

Retirement can seem far off for my younger clients, so I ask them to imagine the type of retirement they want. Do you want to wait until they are 65? Do you want to retire early? Thinking about retirement in terms of the kind of life you want to lead and what you want to accomplish, can help encourage you to set that money aside now.  

A proactive, informed investment approach allows you to be confident in the future and confident that your money is actually being invested in a way that will help you achieve your goals.

Zina Kumok is a freelance writer and editor. She has written for outlets such as Investopedia, Credit Karma, and Learnvest. Her expertise has been featured in Glamour, BBC, and NerdWallet. She paid off $28,000 in student loans in three years and works as a money coach at

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