Financial Red Flags and Scams to Watch Out For
Where there is money, there are unfortunately scams. Seniors are often targeted due to their accumulated retirement savings. Be vigilant and watch out for these red flags.
1. The “Eliminate Your Taxes on Withdrawals” Scheme
You might see an ad or attend a “free lunch” seminar promising a secret strategy to make all your 401(k) or IRA withdrawals completely tax-free. These pitches often involve complex, high-commission insurance products or trusts that claim to have a legal loophole. The truth is, there is no magic bullet to eliminate taxes on tax-deferred accounts. Withdrawals are taxable as ordinary income, period. Any promise to the contrary is a major red flag and could involve you in an illegal tax evasion scheme.
2. Phony IRS Agent Phone Calls
This is a common and frightening scam. You receive an aggressive phone call from someone claiming to be from the IRS. They say you made a mistake on a recent withdrawal, owe thousands in back taxes, and must pay immediately via wire transfer, gift card, or cryptocurrency to avoid arrest. This is 100% a scam. The IRS’s primary method of contact is always through U.S. mail. They will never demand immediate payment over the phone using untraceable methods, nor will they threaten you with arrest.
3. The 60-Day Rollover Rule Mistake
This isn’t a scam but a costly, self-inflicted error. If you take a distribution from an IRA with the intention of rolling it over to another retirement account, you have exactly 60 days to complete the transaction. If you miss that deadline for any reason, the IRS treats the entire amount as a taxable withdrawal. If you’re under 59½, you could also face a 10% early withdrawal penalty. The safest way to move retirement funds is via a “direct rollover” or “trustee-to-trustee transfer,” where the money never touches your personal bank account.
