One of the most important goals of investing should be maintaining financial independence in retirement. With that in mind, here are some key retirement planning tax traps to avoid.

Neglecting taxable savings. Because earnings in qualified retirement plans and IRAs grow tax-deferred, it seems obvious that these plans should receive the maximum contribution allowable and perhaps even the bulk of someone’s available savings. The reality is that the tax hit when withdrawing these funds in retirement often turns out to be potentially higher than many thought. Therefore, you shouldn’t overlook systematically saving after-tax dollars in taxable accounts.

Placing assets in the wrong accounts. Sometimes investments are held across multiple IRAs, qualified retirement plans, and taxable accounts. In these situations, it is prudent to strike a balance between taxable and tax-deferred accounts. It makes sense to talk to a professional when deciding what to invest and in which account type.

Missing “catch up” contributions. Employees who participate in qualified retirement plans at work and are age 50 or older can contribute an additional $5,500 in 2013 (or an extra $1000 in an IRA).

Withdrawing income from the wrong accounts. Understanding your tax situation is important in determining from where and when to withdraw income in retirement. Although this decision requires deliberation, you should consider striking a balance between taxable and tax-deferred accounts to the extent that income generated from the tax-deferred accounts doesn’t place you into a higher tax bracket.

Reinvesting capital gains and dividends when current income is needed. If income is needed in retirement from either tax-deferred or taxable accounts, consider not reinvesting capital gains and dividends within mutual funds. Rather, let them sweep into a money market fund for income payout purposes. This may reduce trading costs, turnover, and potential taxes within taxable accounts. And if the assets are to be withdrawn within a relatively short time, reinvesting can expose the investments to potential volatility.

Having incorrect or no beneficiary designations. It’s important to avoid a taxable distribution of IRA or qualified retirement plan assets to the owner’s estate by ensuring there are individual beneficiaries listed on the accounts (if that’s your intention). Having a trust serve as an unintended beneficiary of your IRA or qualified retirement plan can create a taxable event at your death and effectively negate years of tax deferral benefits for the beneficiaries.

In most cases it may make more sense to name individuals as beneficiaries. If the beneficiary of an IRA or qualified retirement plan is the surviving spouse and that spouse properly rolls over the distribution into an IRA, the distribution will not be taxed until the surviving spouse starts distributions. The surviving spouse is not required to begin distributions until reaching age 70 and a half, unless the decedent IRA owner had already started Required Minimum Distributions (RMDs).

Chip Gordy, MBA, CRPC is a Financial Advisor with Coastal Wealth Management, LLC, 10441 Racetrack Rd, Unit 1, Berlin, Md., 21811 and specializes in Wealth and Retirement Income Planning. He can be reached at 410-208-4545 or chip@coastalwealtmgmt.com.