IRA Contributions: DCA or Lump Sum?

**sweeps** · 01-11-2007, 08:09 AM

Re: IRA Contributions: DCA or Lump Sum?

You'll earn more in the long run if you deposit the full contribution at the beginning of the year.

But keep in mind there is a short term risk in making a lump sum. If you drop $4000 in your Roth IRA today and the market drops 30% over the next month, that will be hard to swallow.

**newgolddream** · 01-11-2007, 08:28 AM

Re: IRA Contributions: DCA or Lump Sum?

Originally posted by Sweepsplayer

You'll earn more in the long run if you deposit the full contribution at the beginning of the year.

But keep in mind there is a short term risk in making a lump sum. If you drop $4000 in your Roth IRA today and the market drops 30% over the next month, that will be hard to swallow.

So it seems the risk is more short term. For example, DCA'ing makes more sense if say I've setup a financial plan to invest in a particular fund for 5, 10, or 15 years. But if I'm saving for retirement, which is still 45 years away for me, it possibly makes more sense just to make the lump sum deposit at the beginning of each new year in order to gain maximum return on my investment.

**sweeps** · 01-11-2007, 11:12 AM

Re: IRA Contributions: DCA or Lump Sum?

Really it all depends. No one can predict future prices. DCA is the safe approach. It's like swinging for a base hit vs. swinging for the fences.

Keep in mind that depositing yearly lump sums is still dollar cost averaging.

A variation on dollar cost averaging is value averaging. If your investment goes up one month you deposit less the next month. If your investment goes down, you put in more the next month. Again, pros and cons to this approach.

**creditcardfree** · 01-11-2007, 11:47 AM

Re: IRA Contributions: DCA or Lump Sum?

I have done both and not regretted either. Some years I've had the cash to make the lump sum, so I just do it to get it off the list. Other years, I've had to DCA in order to get the contribution in.

**newgolddream** · 01-11-2007, 12:48 PM

Re: IRA Contributions: DCA or Lump Sum?

Originally posted by Sweepsplayer

Keep in mind that depositing yearly lump sums is still dollar cost averaging.

I've never thought of it this way, this is true. Thanks all for your responses.

**disneysteve** · 01-11-2007, 12:58 PM

Re: IRA Contributions: DCA or Lump Sum?

I vote for lump sum. The earlier you get your money in the tax shelter, the better off you will be long term, no matter what the market does. Forget about the short term - it isn't a short term investment.

**LivingAlmostLarge** · 01-11-2007, 01:30 PM

Re: IRA Contributions: DCA or Lump Sum?

lump sum it's better. however I lump sum a year later 2007 for 2006, because of income reasons. We're on the border and I'd prefer not to take out the contribution. Yes I know we can, but it's more hassle than it's worth.

**disneysteve** · 01-11-2007, 02:26 PM

Re: IRA Contributions: DCA or Lump Sum?

Originally posted by LivingAlmostLarge

lump sum it's better. however I lump sum a year later 2007 for 2006, because of income reasons. We're on the border and I'd prefer not to take out the contribution. Yes I know we can, but it's more hassle than it's worth.

We got caught in 2006. I had contributed the full $4,000 to my wife's traditional IRA. Then she became eligible to contribute to the 403b plan at her job, which made her ineligible to have the traditional IRA. So I had to recharacterize the contribution into a Roth. Really no hassle though. I downloaded the form off Vanguard's site, filled it out and mailed it in.

**LivingAlmostLarge** · 01-11-2007, 07:57 PM

Re: IRA Contributions: DCA or Lump Sum?

No we max out DH's 401k, but there is a signing bonus for him paid in company stock, and last year it would have been $10k, this year it doubled so we were very close to $150k income limit. This year same thing, plus another bonus in february and raise, so we were going to contribute to the the Roth. But if we were over the income then we couldn't contribute.

Disneysteve I'd be careful, because last year I tried to recharacterize money, but couldn't if you make more than $100k joint, you are unable to recharacterize your IRA. http://www.usatoday.com/money/perfi/...roth-ira_x.htm

So if I contributed now for 2007 and went over, then I'd have to pull out $4k plus earnings and pay taxes and penalties on the earnings.

**disneysteve** · 01-12-2007, 04:21 AM

Re: IRA Contributions: DCA or Lump Sum?

Originally posted by LivingAlmostLarge

Disneysteve I'd be careful, because last year I tried to recharacterize money, but couldn't if you make more than $100k joint, you are unable to recharacterize your IRA. http://www.usatoday.com/money/perfi/...roth-ira_x.htm

Hmmm. Since it was my accountant who instructed me how to correct the situation, I'm hoping that he knew what he was talking about. He's never steered me wrong before. I guess I'll find out shortly when I do my taxes.

**LivingAlmostLarge** · 01-12-2007, 04:48 AM

Re: IRA Contributions: DCA or Lump Sum?

Go to IRS website and read publication 590. It says on the page about the income limits on recharacterizing. Of course in 2010 they will life this $100k income restriction.

**Duchesse** · 01-22-2007, 12:27 PM

Re: IRA Contributions: DCA or Lump Sum?

This has alot to do with your tolerance to risk as well as your finances.

IRA Contributions: DCA or Lump Sum?