Just as every generation has unique financial challenges, each generation also has unique roadblocks that can hinder their financial futures. Here are the most common money mistakes we see Gen-Z, Millennials, Gen-X and Baby Boomers making.

Gen-Z (born 1995-2015): Ignoring Retirement Savings

As this generation enters the workforce in growing numbers, saving for retirement can be a low priority for many in Gen-Z. Between the struggles of paying down student debt and finding a lucrative job after college, there may not be a lot of excess cash available for saving in an IRA or 401(k).

It’s important to remember that even small amounts of money can add up to large sums over the long term. Imagine Jack, a member of Gen-Z, is 25 and invests $50 a month into an IRA and achieves a hypothetical 8% rate of return. After 40 years, he’d have about $155,430. If Jack waits just five years to begin saving, that number drops to about $103,390. If your employer has a matching contribution in your 401(k), it’s important to try to save enough to maximize the match; ignoring it means you’re leaving money on the table.

Millennials (born 1980-1994): Cashing Out an Old 401(k)

One of the most harmful financial mistakes millennials can make as they get older and navigate their career is dipping into your IRA or 401(k) before you’re allowed to take penalty-free distributions. When people move jobs, they may cash out their old 401(k) rather than rolling it into their new employer’s plan or into an IRA. The problem is that if you’re younger than 59 ½ (or 55 in some instances), you’ll not only pay income taxes on the amount cashed out, you’ll also pay a 10% early withdrawal penalty. A Roth 401(k) wouldn’t have any income taxes, but you’d still incur a 10% penalty.

Let’s say you’re 40 years old, in the 25% tax bracket and have $50,000 in a tax-deferred 401(k) that you want to cash out. In addition to paying $5,000 in penalties, you’ll face federal income taxes of $12,500. This means more than a third of the total is lost to taxes, and that’s before taking into account potential state taxes.

Gen-X (born 1965-1979): Ignoring Tax Diversification

As Gen-X shifts their focus to saving for retirement, members of this generation can’t forget about the importance of diversifying their assets by tax treatment. Most workers over-prioritize saving in tax-deferred accounts, such as 401(k)s and 403(b)s, because they are easily accessible through employers. Why is this a problem? Because, what you see is not what you get. Just because you have $1 million in an IRA, doesn’t mean you have $1 million to spend during retirement. Tax-deferred accounts come with tax liabilities upon distribution, so after federal and state taxes it is more likely you’ll only get to spend closer to 60% to 70% of what you see on your statement.

Tax diversification means owning assets in different types of accounts so you have the flexibility to better balance the tax impact of utilizing those assets later in retirement. Since not all investments are treated equally by the IRS, it’s helpful to work with a financial advisor to categorize the appropriate ratio of tax treatments of your investments into three groups:

• Tax-deferred. You get an income tax deduction on your investment now, your earnings grow tax-free, and taxes are deferred until distributions begin, generally by age 70 ½. Examples include traditional IRAs and 401(k)s.
• Taxable. Investments made after taxes where any earnings are fully taxable at year end. Examples include taxable brokerage accounts.
• Tax-advantaged. Contributions are made after taxes, your earnings grow tax-free, and there is no tax due on distributions, assuming certain requirements are met. Examples include Roth IRAs and Roth 401(k)s.

Baby Boomers (born 1944-1964): Not Planning for Social Security and RMDs

The rule of thumb that many people follow is to simply claim Social Security once they turn 62. This is the earliest you can begin drawing benefits, but the reality is that there’s an eight-year window between ages 62 and 70 during which you can claim benefits. The longer you delay filing, the higher your benefits will be once you do file. There are certainly situations when it may make sense to file at 62, but it’s important to fully analyze all of your options before you file. Making the best Social Security decision could mean hundreds of thousands in additional lifetime benefits.

Once you have your Social Security strategy in place, shift your attention to required minimum distributions (RMDs) on your accounts. RMDs are Uncle Sam’s way of finally being able to collect taxes on your savings that had previously been able to grow for years with taxes deferred into the future. With the passage of the SECURE Act late in 2019, RMDs don’t start until you turn 72. That doesn’t mean you should forget about them until then. As with many facets of financial planning, proactively preparing for RMDs as soon as possible can help you avoid an unnecessarily large tax bill in retirement.

No matter how young or old you may be, no one is immune from making a financial mistake. The key to preventing these mistakes is continued financial education. Your financial advisor can walk you through all of your options and help you make the best decision for your situation.

This article originally appeared on March 5, 2017 in the Des Moines Register. You may view the article here.