Avoid these IRA mistakes

These days we need to do all we can to boost our retirement savings, and tax breaks can help.  To build your individual retirement account and maximize your potential savings, avoid these common IRA mistakes:

• Don't delay opening an IRA.  The earlier you start, the longer your savings will compound tax-free.  Those extra early years of compounding can amount to a sizable sum of money come retirement age.  Even teenagers or college students should consider saving some of their earnings in an IRA.

• Don't put the wrong investments in an IRA.  Never put tax-free investments, such as municipal bonds, in an IRA.  You'll end up paying ordinary income tax on money that wouldn't have been taxed, or you'll sacrifice earnings for a tax benefit you'll never receive.

• Don't overlook the catch-up contribution.  If you're 50 or older, you can contribute an extra $500 to your IRA starting this year.  That's in addition to the regular $3,000 limit for 2002.

• Don't name the wrong beneficiary.  Your choice of beneficiary can affect how quickly IRA funds must be distributed.  The longer money stays in the IRA, the longer it grows tax-free.

• Don't choose just one IRA beneficiary.  Naming a contingent or backup beneficiary gives your heirs tax planning opportunities after you die.

• Don't choose the wrong type of IRA.  Decide whether a Roth IRA or a traditional IRA is best for your age and circumstances.  You can't deduct contributions to a Roth, but distributions are generally tax-free when you retire.  Traditional IRA contributions may be deductible, but distributions are taxed.