Roth IRA – 2008 Contributions


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:

  1. 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!
  2. 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.
  3. 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.
  4. 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.
  5. 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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