It’s never too early to start saving for retirement — and it’s certainly never too soon (or too late) to get familiar with your savings options. But knowing the basics surrounding the tax advantages of your Individual Retirement Account (IRA) can be difficult. After all, who understands all 73,000+ pages of the United States tax code?

Having a solid grasp of how an IRA works can save — and earn — you thousands of dollars over time, simply by following the rules. Take a look at these common IRA mistakes to avoid and help keep you on track for the retirement you deserve.

Mistake 1: Underestimating how much money you’ll need in retirement

Everyone’s retirement plan is different depending on when and where you retire and what kind of lifestyle you’d like to maintain. There’s no one-size-fits-all plan, but aiming to replace 80% of your pre-retirement income is a good general rule to go by.

If you make an annual salary of $100,000 at the end of your career, you will want to have about $80,000 available per year to spend to continue living a similar lifestyle. (If you were saving 15% of that income each year and paying income taxes, you’d be used to living on roughly that amount.)

While you’ll have support from Social Security, you will still want to have about $50,000 saved for each year of retirement to reach $80,000. If you plan to be retired for 20 years, you’ll need to sock away $1 million.

Even if you are used to a more modest lifestyle, these can feel like big numbers. But if you break them down over time (and give yourself a good head start by starting to save at a young age), they aren’t as daunting as they might seem. The magic is all in the planning.

Mistake 2: Not knowing the difference between types of IRAs

The four common types of IRAs are traditional, Roth, SEP, and SIMPLE.

With a traditional IRA, your contributions may be tax deductible, and you may not owe income tax on your contributions or your earnings until you make a withdrawal. Traditional IRAs can be a great option if you want to lower your taxable income upfront, but those tax deductions are subject to income limits.

Keep in mind: You will have to pay taxes on both the contributions and earnings when you withdraw the money in retirement, but since it’s likely your annual income will be lower, you could be taxed at a lower tax rate.

On the flip side, a Roth IRA requires a degree of patience to get a tax break. While your contributions are made with income that has already been taxed, money grows tax-free and distributions are tax-free during retirement. You can also withdraw contributions (not earnings!) from your Roth IRA at any time without penalty — which you cannot with a traditional IRA.

A Simplified Employee Pension (SEP) IRA is similar to a traditional IRA, and it’s basically a retirement account for business owners or self-employed workers. However, if the business owner does have employees, all must receive the same benefits under the SEP plan.

Along similar lines, Savings Incentive Match Plan for Employees (SIMPLE) IRAs are typically utilized by small companies with fewer than 100 employees. Like a 401(k) for small businesses, employees can direct a portion of their paycheck automatically into the account and employers are mandated to match contributions up to 3% of the employee’s salary. Or, employers can set up a non-elective contribution method, in which employees aren’t required to contribute, and employers make contributions equal to 2% of the employee’s salary.

Want to compare your IRA options? Find out which is best for you here.

Mistake 3: Contributing too much

The 2019 contribution limit for a traditional IRA or Roth IRA for those under 50 years old is $6,000 per year, and $7,000 per year for those 50 and older. (These numbers are up from 2018 limits: $5,500 and $6,500, respectively.)

If you have multiple IRAs, these limits apply to the total amount contributed — not each individual account. Contributing too much? You will incur a penalty. But if you realize the mistake before filing your tax return, you can withdraw the money to avoid any fees.

You can contribute quite a bit more money per year to a SEP IRA — up to $56,000 or 25% of compensation (whichever amount is lower). Unlike traditional and Roth IRAs, a “catch-up” contribution does not exist for workers who are 50 years of age or older and have an SEP IRA.

SIMPLE IRAs let employees contribute up to $13,000 per year (plus an additional $3,000 annually as a catch-up contribution for those 50 years of age and older). While matching employer contributions have no limit, if an employer chooses the non-elective 2% contribution option, the maximum annual contribution is $5,600.

Mistake 4: Not knowing income limits

Yes, there are more than just contribution limits to be aware of. Roth IRAs have limits regarding your income. As of 2019, those married and filing jointly must make less than $193,000 to contribute the full amount to a Roth IRA or between $193,000 and $203,000 to contribute a reduced amount. Those earning more than that aren’t eligible to contribute.

For individual tax filers, earnings must be less than $122,000 to contribute the full amount or up to $137,000 for a reduced contribution. (Those earning more than $137,000 cannot make Roth contributions).

Finally, married couples filing separately and making more than $10,000 aren’t eligible to make Roth contributions at all. (If you make less than $10,000, you can contribute a reduced amount.)

Income limits do not exist for traditional IRAs, but if your income exceeds a certain amount (greater than $103,000 for married filing jointly, greater than $64,000 for those filing as a single individual) your contribution may not be eligible for a tax deduction.

Mistake 5: Waiting too long to contribute

The deadline to contribute to your IRA is tax day (mid-April) each year. For the 2019 tax year, this means you could have started contributing on January 1, 2019 and can continue to add to your IRA until April 15, 2020.

Ideally, you’d contribute as much as you can (up to the limit) as early as possible, giving your money more time to grow. But not everyone has thousands of dollars lying around in January to contribute, so you can utilize other savings strategies instead.

Setting up automatic payments (monthly or bi-monthly, for example) that move money to your IRA is a great way to avoid last-minute contribution panic. This practice utilizes “dollar-cost averaging,” which means since you are investing in the stock market regularly, the fluctuations of the market will even out over time. One month, you might buy high, but then the next month you could buy at a more affordable price.

Mistake 6: Withdrawing too early (or not the correct amount)

Typically, if you make a withdrawal from your IRA before you are age 59 ½, you will incur taxes and a hefty 10% penalty fee, (though there are a few exceptions, like using the money for higher education or buying your first house). While Roth IRAs are more lenient when it comes to withdrawing contributed money (since it’s already been taxed) you will typically have to pay a fee for earnings that are withdrawn early.

Roth IRAs also have a 5-year rule for distributions, which stipulates that five years must have passed since the tax year of your first contribution in order for earnings to be withdrawn tax-free. For example, say you made your first contribution to your Roth IRA at age 57 in early 2019. While you’d turn 59 ½ in late 2021, your distributions wouldn’t yet qualify for tax-free withdrawal since five years haven’t passed.

Traditional IRAs have a Required Minimum Distribution (RMD) that go into effect once you’re later in retirement. RMDs are calculated by the IRS (which is seemingly itching to get those income tax dollars) and takes into account your IRA’s remaining balance and your life expectancy.

Starting each April 1 after you turn 70 ½, you must withdraw a specific amount of money annually from your traditional IRA — and failure to do so results in a penalty of 50% on the amount not withdrawn. After your first year, you are required to take out your RMD by December 31.

Mistake 7: Moving money and losing money

It’s important to know how to move retirement funds without causing yourself the pain of additional penalties and taxes. When it comes to your IRA, you can transfer, rollover, or conduct a conversion of your money.

A transfer is the movement of funds from one account to another account of the same type (like a Roth IRA at one bank to a Roth IRA at a different bank). When moving funds from one type of account to a different type of account, that’s a rollover. (Think: 401(k) to a traditional IRA.) Finally, a conversion occurs when you change a traditional IRA to a Roth.

Why does this matter? It all boils down to taxes. Transferring or rolling over funds can leave you with a heftier tax bill, early withdrawal fees, and penalties if done incorrectly. Consulting with a tax professional or financial planner can help you avoid money-moving mistakes and make sure your funds are in the most beneficial account for your financial situation.

Rest assured in your retirement funds.

IRAs may seem like a simple way to shelter your money from taxes and capital gains at first, but the devil is in the details when it comes to your retirement savings. Build a solid background knowledge so you can avoid these common mistakes and become a savvy saver from the moment you open your IRA and ensure you’re golden in those golden years.

Open an IRA with Ally Bank today.