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By Jason Stipp and Christine Benz | 02-24-2014 11:00 AM

10 Missteps With Tax-Sheltered Accounts

IRAs, 401(k)s, and Roth accounts are key components of your toolkit, so make sure you get the most out of them.

Jason Stipp: I'm Jason Stipp for Morningstar. It's Tax Relief Week on Morningstar.com, and today we're helping you maximize tax-sheltered accounts, specifically by avoiding some pitfalls in those accounts.

Here to talk about some of common mistakes, and uncommon mistakes, is Christine Benz, our director of personal finance.

Thanks for joining me, Christine.

Christine Benz: Jason, great to be here.

Stipp: Christine, there are a lot of big mistakes that seasoned investors know, such as missing out on the company match in a 401(k), but you also have some maybe lesser-known mistakes that you can make in these accounts that could ultimately help investors save some tax dollars.

The first one is reflexively reaching for a Roth account. Roth accounts have a lot of great benefits, but they're not right in every single situation.

Benz: That's right. The keep profile for whom a traditional deductible IRA will tend to make the most sense is someone who is getting close to retirement and hasn't yet saved a lot. That person may in fact be in a higher tax bracket today than they will be when they are retired. In that case that tax deduction that you get when you make your contribution is going to be more beneficial for you than it will be in retirement. You may be in a much lower tax bracket in retirement than you are today.

Stipp: A possible second mistake can occur when converting assets from traditional IRAs to Roth. You need to be careful when you do that, especially if you have other traditional IRA assets.

Benz: That's right. It gets complicated. A lot of people have been enthusing about what's called the backdoor Roth IRA. That means that you open a traditional non-deductible IRA and then you convert that to a Roth. You can do that at any income level, which is why it has gained some excitement among higher-income investors.

The key thing you need to be aware of is, if you have other IRA assets, traditional IRA assets, that have not been taxed yet, the tax treatment that you'll incur when you do that conversion will be based on your ratio of monies that have never been taxed to new IRA assets. So you want to be careful. You may want to check with a tax advisor to see whether that backdoor Roth idea makes sense for you.

Stipp: Another mistake when it comes to doing these conversions is thinking that it's an all-or-nothing prospect--that you have to convert every single bit of your traditional IRA to Roth--but that's not the case.

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