Roth IRA – 2008 Contributions
April 3, 2009 by: Dave Ozment
Have you fully funded your 2008 Roth IRA contributions? Yes, you read that correctly, 2008 contributions.
Tax law allows you until April 15, 2009 to complete your 2008 contributions – which for an individual is limited to $5,000 for those making under $101,000 and $10,000 for couples making under $159,000.
If you’re sitting on an Emergency Fund – and not planning to tap these funds in the immediate future – sliding some of these dollars into your 2008 Roth might allow to you maximize your long run.
Face it, this is not a chip you want to leave on the table considering that it may have implications stretching 20 or 30 years into your future. This is not a coupon clip or 0% balance transfer… this could be some serious dough.
Here are 5 steps to make this tip fly – execute them with the assistance of your professional financial planner:
- If you haven’t already, open a Roth IRA. You know about Roth’s right? Conventional IRAs are funded with pre-tax dollars and the growth is tax deferred. Roth’s do the opposite – they are funded with after tax dollars and all growth is tax free. Still not sure… imagine you’re 70 and you have $2 million in the account – would you prefer to pay taxes on that entire whopping sum or to have already paid taxes only on the dollars you contributed into the account years ago? Yep, go Roth!
- Transfer money from your Emergency Fund into the Roth but leave it as cash in the account. Because this is after tax income you’ll have access to your contributions at any time – say in the case of an Emergency. However, because it’s in a Roth, all the growth is tax free.
- Restock your Emergency Fund. I am not a proponent of multi-tasking your money over the long haul. However, an extra 5 or 10 thousand growing tax free for the next 30 years is worth a single simple gyration today.
- Once your Emergency Fund is restocked – and only after it is restocked – invest your Roth funds. Investing before you’ve restocked puts your Emergency dollars at risk in the short term, but moving them into the Roth now and then investing them a couple months down the road will result in years of tax free growth.
- Don’t find yourself in this position again! Update your budget so you’ll be able to fund your Roth IRAs throughout the year.
Photo By: scottwills
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As a financial planner, I have to agree with you 100% that Roth is the way to go. Very unique idea about the emergency fund as a safe funding vehicle (few people realize that you can access the principal of your Roth with no penaltys) You are the man!
Brandon’s last blog post..Energy Drink Business
Thanks dude! I view it as “multi-tasking” with my money. But I do only view this as a short term option (at least personally). I also wouldn’t invest my emergency fund… for obvious reasons given the market over the last year. But low interest rates in a savings account are the same as those in a Roth protected money market… why not make the $$ just a little harder to access – make yourself prove that it’s really an emergency!
As we sit here on April 3 and I have a few dollars from my buyout and a couple job prospects in the hopper… it makes sense to pour some dollars in the Roth before the 15th… if I don’t land a gig and need the money its there same as it ever was… but if/when I land something, then I’ve just brought myself 1-2 years closer to retirement readiness on the back end!
I appreciate your professional validation!
Dave
It is very interesting how you slice up your financial decisions. That is probably the best thing that your readers can learn from you…every financial decision that you make effects other financial areas of your life…so that being said you need a method to slice, dice, and evaluate decisions before you pull the trigger. This should lead to optimal results!
Bravo!
Brandon
The Almost Millionaire’s last blog post..Should I buy a house?
Very interesting……….. I’ve not consciously connected those dots but you’re causing me to reflect over that. I am a huge fan of processes and systems. My Goal Series is a prime example as are writing ideas that I have in the hopper. I think that’s why I’m a huge fan of Dave Ramsey’s steps or process because it forces objectivity and the steps are very deliberate.
Hmm, ok I think our time is up for this session doc…. but you’ve certainly provided me with food for thought for our next meeting!
Thanks TAM!
Dave
We have to be insane not to contribute to the Roth. Unless we make too much to qualify.
Stephen – Rat Race Trap’s last blog post..Develop the Courage to Take Risks
Agreed… Roths are the best thing going. Everyone should take full advantage while they can… meaning before their income raises to high (a good prob to have) or before the demos take it away.
Good advice, I’ll def. be using this when I make my decision
-Nate
Nate @ Money Young’s last blog post..How Nicole could earn $1,000 per month
Thanks Nate, glad you hopped over to check it out.
Dave