You're working hard to pump up your retirement nest egg, right? Well, then, the last thing you want to do -- after scrimping and saving and managing your investments to squeeze every last percentage point you can into your returns -- is to make one of these common mistakes that will cost you big money when you retire.

1. Don't blank on the beneficiary
Believe it or not, but something as simple as naming a beneficiary on a proper beneficiary form could save untold thousands, perhaps millions. If the beneficiary is a spouse, he or she can merely take the account over. A non-spouse will have to take required minimum distributions but will be able to "stretch" the distributions over their life expectancy, creating huge tax benefits.

With no living beneficiary, however, an IRA account goes through probate and must be emptied within five years. How bad can this hurt?

Let's say your grandmother was an investing genius, buying bits and pieces of stocks she knew and loved during her life. She wanted to invest in the gasoline she burned, the cola she drank, the ketchup she ate, the toilet paper she used, etc. These are the companies Professor Jeremy Siegel calls "corporate El Dorados," dividend-paying consumer goods businesses that smashed the market during his 1957 to 2003 research period:

Company (2003 Name)

Dividend yield

Annual return

Royal Dutch Petroleum (NYSE:RDS-A)



Phillip Morris (NYSE:MO)



PepsiCo (NYSE:PEP)



H.J. Heinz (NYSE:HNZ)



Procter & Gamble (NYSE:PG)



S&P 500



So through scrimping and saving and investing, your grandmother was able to leave $100,000 to your one-year-old daughter.

If you had to empty the account and take the tax hit, you'd be left with something quite a bit less than 100 grand. But if you "stretch" the distributions and take out only the minimum required amounts each year, that $100,000 will turn into $3 million by the time your daughter is 67. That's the power of a tax-sheltered account growing at an 8% average annual rate for 66 years.

This is extremely important, according to acclaimed IRA expert Ed Slott, author of Parlay Your IRA Into a Family Fortune. It's so important that the IRS rules might as well say: "Look, just name anybody -- any living, breathing person, with a pulse and a birthday -- at any time, and after you die, we will let that beneficiary 'stretch' or extend distributions over the rest of their lives."

2. Review, review, review
Slott told Robert Brokamp in the Motley Fool Rule Your Retirement newsletter the heartbreaking tale of a New York schoolteacher who'd accumulated a million dollars in her retirement account. But when she died, her husband found out he wasn't entitled to any of it. Turns out she started teaching before she met him, and she named as beneficiaries her mother, uncle, and sister. Both her mother and uncle had died, so the sister got everything -- and wouldn't share any of it with the husband.

"A simple event like that, imagine," says Slott. "She went to her death thinking that maybe her husband was taken care of, but it wasn't that way and now he didn't get a cent." A simple review of her beneficiary form at any time during her decades of employment could have saved the heartbreak.

After this tale was published in Rule Your Retirement, a reader decided to check her husband's forms. "To my horror," she wrote, "I discovered that our mutual fund company had mixed up our paperwork somehow and listed our youngest daughter as the primary beneficiary!"

Your path to action is clear: Round up every beneficiary form for every IRA you have, "at every bank, broker, or fund company," says Slott. "You will be amazed at what you will find, and it is good to know now while you are still breathing so you can change it."

3. Know your age limits
Let's close it out with an easy one here. While most of us know you can start taking money out of your IRA at age 59 1/2, more people than you'd think don't know that you are required to start taking distributions at 70 1/2. If you don't, the penalties can be extremely costly.

Slott recounted the recent case of a 78 year old who simply didn't know: "That means he hasn't been taking distributions for eight years." And the penalty? Try 50% of the amount he should have withdrawn but failed to. "Make sure that if you have too many accounts or if it is out of hand," Slott says, "start consolidating so you can figure out the right amount of your required distribution and you don't end up paying out all your retirement money in penalties."

There is much more golden advice in Slott's interview. A free trial to Rule Your Retirement will give you access to that interview, as well as every past issue and specific stock and mutual fund recommendations to get you in better shape for your retirement. Here's more info.

Rex Moore just finished all the corn flakes. He owns no companies mentioned in this article. H.J. Heinz is a Motley Fool Income Investor recommendation. The Fool has adisclosure policy.