It's not enough. The average balance in an IRA would fund less than two years of retirement for the average American and represents not much more than 5 percent of the income a person needs to maintain a decent standard of living. • The average and median IRA account balances in 2008 were $54,863 and $15,756, respectively. The average and median IRA individual balances — all accounts from the same person combined — were $69,498 and $20,046, according to a recent Employee Benefit Research Institute report. • Despite what might seem like paltry balances, IRAs in the aggregate "are an incredibly important piece of the retirement puzzle, since they hold the largest single share of the $13 trillion in U.S. retirement assets," Craig Copeland, senior research associate at EBRI and author of the study, said in a release. • Your IRA, paltry or not, requires some tender loving care, especially during the last few months of the year. Here's a list of what you might need to do before 2011.
1. Take your required minimum distribution. Make sure all required minimum distributions are taken for the year.
"Look at all owned IRA accounts and employer plans for individuals age 701/2 or older this year, as well as at inherited IRAs, employer plans and Roth IRAs," said Beverly DeVeny, an IRA technical consultant with Ed Slott and Co.
2. Check for excess contributions. It might seem unlikely, given that the average IRA contribution is $3,798, but it's possible that you contributed too much to your IRA during the year. If so, remove any excess contributions before year's end. You will be charged a 6 percent penalty for excess contributions, said Edward J. Lustberg, a certified public accountant.
3. Is everything in place? Take nothing for granted when it comes to your IRA. "Before year end, double-check on all IRA funds that moved during the year," DeVeny said. "Make sure that IRA funds went into IRA accounts, not non-IRA accounts or Roth IRAs, and be sure that Roth IRA funds went into Roth IRA accounts. Look for any unexplained distributions during the year."
4. Can you do a stretch IRA? Check whether your IRA custodian or 401(k) plan administrator will allow for the so-called stretch for beneficiaries, said Ben E. Connor, a lawyer with Connor Law Firm.
The stretch means that beneficiaries can use their own life expectancy for distributions. In addition, check whether the custodian or plan administrator will accept a durable power of attorney, and disclaimers.
5. Who's your beneficiary? Here's some well-worn but can't-be-repeated-often-enough advice: Review your beneficiary designations. Make sure there is both a primary and a contingent beneficiary named on the beneficiary designation form.
Make sure your custodian has a written copy of your beneficiary designations.
6. One last chance for Roth conversions. If you plan to do a Roth conversion in 2010, "the funds must leave the IRA by Dec. 31 to be reported and taxable as a 2010 distribution and conversion," DeVeny said. "The funds can then be rolled over to the Roth IRA up to 60 days after they are received by the account owner — up to March 1 if the distribution was received on Dec. 31."
Remember, too, that anyone can convert their traditional IRAs to a Roth IRA in 2010 regardless of income. What's more, you can pay the taxes over two years, instead of one.
7. Turn wealth into income. Right about now, the Social Security Administration is sending you a report that tells you how much income you'll receive in today's dollars when you retire. Write down that number on a piece of paper.
Now, total up the value of all IRAs and 401(k)s in your household and multiple that number by 0.04. That number is the amount some experts say you could withdraw from your retirement in today's dollars.
Now, add that number to your Social Security benefit figure, and then subtract that amount from your income. The results are roughly the amount of money you'll need from other sources — such as work, pensions, reverse mortgages, life insurance or inheritances — to enjoy a lifestyle similar to what you have today.
Let's use some round numbers as an example. Say you have household income of $100,000. You expect to receive $25,000 per year from Social Security and withdraw $5,000 per year from your retirement accounts. Somehow you'll need to come up with $70,000 more per year to live the life to which you are accustomed.
For some, the best way to close the gap will be to contribute more to their IRAs and 401(k)s, work longer and lower their standard of living.
8. Review your investment plan. Consider updating your investment policy statement or plan. "Make sure your asset allocation remains appropriate given your financial goals," said Michael L. Gay, a certified financial planner with Portfolio Solutions.