I haven't contributed any of my own money to my retirement fund in over six years. While my IRA is invested in a dividend reinvestment fund, which reinvests monthly dividends back into the fund to increase share total, I haven't added a single penny of my own money since I left the regular workforce to become self-employed just before the financial crisis and ensuing recession.
While reduced income, a collapsed housing market, and two kids have made it difficult to free up funds to contribute to my retirement account, these aren't the only reasons I've held back.
I can't have the money
I guess it's not that I can't have the money in my IRA, but it's that I can't currently have my money in most instances without some sort of penalty. Unless I'm meeting certain guidelines such as hardship circumstances like using this money for health insurance while I'm unemployed or I'm using the money for buying a first home or qualified education expenses, then I'm going to incur a 10 percent penalty if I withdraw money from my traditional IRA before age 59 ½. Add this to the potential tax liability upon these proceeds and it could take a huge chunk out of my withdrawal should I want or need this money early than that set age.
Then I'm forced to take the money
While I'm restricted in when I can take my money, I'm also told when I need to take it in the form of MRDs (minimum required distributions). According to Fidelity.com, "You generally have until April 1 of the year following the calendar year you turn age 70½ to take your first MRD. In subsequent years, the deadline is December 31. MRDs will be required each year for the remainder of your life after 70½.
Penalties for taking less than your MRD after 70½ can be severe-up to 50% of the amount not taken."
So again, I'm being told how to handle my own money, which I don't really care for. It's not that I wouldn't mind taking a distribution at age 70 ½, but if I don't find it necessary, I don't think that I should be pushed by way of financial penalty to do so.
Meanwhile, there are fees, bubbles, mediocrity, and uncertainty
In the interim period between now and the rest of my life (and even beyond should the IRA be transferred by inheritance to my decendants, at which point they might find themselves being pushed to take minimum distributions as well), there is all kinds of uncertainty that the money in my IRA may be subject to.
There are management fees that eat into my retirement plan, there are bubbles like the tech bubbles and housing bubble, there are crises and uncertainty both at home and abroad, and there is general mediocrity in performance with my fund remaining largely flat over the period from the end of 2007 until the end of 2013 even though it's been one heck of a rollercoaster ride.
Therefore, I've decided to take a substantial breather from contributing to my retirement fund. In so doing, I've been able to focus on other options and opportunities such as debt reduction and bolstering emergency savings while still growing share value in my IRA by moving its contents into a dividend reinvestment plan in which dividends are paid and reinvested monthly.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute advice of any kind. Statistics have not been verified by a professional. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
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