Dear Liz: When I retired, I had a small 401(k) with about $12,000 in it. Instead of rolling that money into an IRA, I took a distribution and paid taxes on it. I had no immediate need for the remaining funds, so eventually I opened a new IRA account and deposited the money.
I now realize I should have put it in a Roth IRA so I wouldn’t face double taxation on the money. This is the stupidest thing I’ve done in recent memory. Is there any legal mechanism I can use to get that money out and into a Roth without paying taxes the second time?
Answer: You made a mistake, but probably not the one you think.
You can’t contribute to an IRA — or a Roth IRA, for that matter — if you don’t have earned income. So if you’ve fully retired, you should contact your IRA administrator and let them know you need to withdraw your “excess contribution” as well as any earnings the contribution has made.
If you contributed this year, you have until your tax filing deadline — typically April 15, 2026 — to remove the funds without penalty. If you contributed in a previous year, you’ll typically face a 6% excise tax for each year the money remained in your account.
Now, a warning about financial mistakes: They tend to become more common as we age. That can be incredibly unsettling, especially to do-it-yourselfers used to handling finances competently on their own. Retirement is a good time to start implementing some guardrails to protect ourselves and our money.
Hiring a tax pro would be a good first step. Anything to do with a retirement fund should be run past this pro first to make sure you’re following the tax rules.
Dear Liz: In response to a reader who asked about creating a will, you suggested options for low-cost online resources. That is great! But, I would encourage you to remind readers to designate beneficiaries on accounts and assets where that option is available.
While they should still have a will, many readers may not know that they can add beneficiaries to brokerage, checking, and savings accounts (in addition to IRA and retirement accounts) so that their assets will pass directly to the designated beneficiaries and not have to go through probate with the extra hassle, time and expense.
For those without a trust, designating beneficiaries may be the easiest way to pass on many of their assets. In California (and some other states), even houses may pass without probate with a transfer-on-death deed. Many readers may not know about the option to add beneficiaries, and you would do your readers a service by educating them about it.
Answer: Anyone adding beneficiaries to accounts needs to be aware of some major potential drawbacks.
A big one involves settling the estate. If all available funds are transferred directly to beneficiaries, the person settling the estate may not have enough cash to do their job.
Beneficiary designations can also result in unintentionally unequal distributions if there’s more than one heir, and complications if the beneficiaries die first or aren’t changed appropriately as life circumstances change. That’s not to say that beneficiary designations are the wrong choice, but they’re certainly not a one-size-fits-all option.
Dear Liz: Your recent column about advanced directives said that people could get a free version at PrepareForYourCare.org. I found there is a charge. Is this for all online directives?
Answer: Prepare is a free site supported by donations, grants and licensing agreements. If you were asked to pay, you either clicked the donate button or weren’t on the correct site.
Liz Weston, Certified Financial Planner, is a personal finance columnist. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.
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