IRA/ROTH limit rises for 2008

[disneysteve]

Happy New Year! Your present is that you now get to contribute an extra $1,000 to your IRA this year. The limit for those 49 and under is now $5,000, up for $4,000 last year. For couples, that means you get to stash an extra $2,000 in your tax-sheltered accounts.

For those who do automatic monthly contributions, that's $416.67/month.

I'm juggling a couple of things around to come up with the extra $2,000. I'm going to lower what we put in DD's 529 plan. I'm also going to decrease what goes into one of our taxable mutual fund accounts. That will free up $1,800/year to redirect into our Roths. The other $200 isn't an issue. Besides, the last payment on DD's braces is in May. After that, we'll have an extra $150/month to play with.

[jIM_Ohio]

Happy New Year! Your present is that you now get to contribute an extra $1,000 to your IRA this year. The limit for those 49 and under is now $5,000, up for $4,000 last year. For couples, that means you get to stash an extra $2,000 in your tax-sheltered accounts.

For those who do automatic monthly contributions, that's $416.67/month.

I'm juggling a couple of things around to come up with the extra $2,000. I'm going to lower what we put in DD's 529 plan. I'm also going to decrease what goes into one of our taxable mutual fund accounts. That will free up $1,800/year to redirect into our Roths. The other $200 isn't an issue. Besides, the last payment on DD's braces is in May. After that, we'll have an extra $150/month to play with.

I budget $625/month for the IRAs. This year instead of investing Jan-June, with a partial in July, we max out in August, I believe.

[autoxer]

I've been looking forward to this, because I finally got ahead. Last year I figured out that if I put $94 a week into a money market earning 5%, then I'll have $5k at the end of the year, so I'm ready to make my entire '08 contribution in January of '08.

[FrugalIII]

Did the max for those of us over 50 also go up?

[disneysteve]

Did the max for those of us over 50 also go up?

Yes, folks over 50 can still put in an additional $1,000, so a total of $6,000 this year.

[rennigade]

Talking about Roth IRA's. Does anyone have a preference of contributing the entire amount come Jan 1st. Or to spread it out monthly? If you fully fund your roth on jan 1st, then you can ride the ups and downs throughout the year.

[My English Castle]

dollar-cost averaging

Most people, or at least most studies say the monthly approach is best over the long haul. That way you're not caught up in every market movement.

[disneysteve]

Most people, or at least most studies say the monthly approach is best over the long haul. That way you're not caught up in every market movement.

I disagree. You are talking about money you won't touch for decades. Plus, the sooner you get it into your Roth, the sooner you stop being taxed on it. If you've got the money and the risk tolerance, go ahead and throw it in on January 2 each year.

[atomicrc11]

Also, if you have a 401k, and don't max it out before the end of the year, you are already dollar cost averaging your money as the amount is deducted from each paycheck and deposited into the 401k.

[anonymous_saver]

Absolutely do a full contribution January 1st if you have the money! It doesn't make sense to dollar cost average when you already have the money, you are missing out on a lot of the compounding benefits by holding off. I agree with disneysteve, this money is in your Roth for the long term.

Plus when you are making your 4-5% interest on your money, you will be taxed on those gains.

Good point atomicrc11.

[jIM_Ohio]

If market goes up, lump sum will make more money.
If market is going down, DCA will make more money (investing a little each month).

If you don't know, then do one or the other.

If you look into a crystal ball 20 or 30 years ahead (240 to 360 months ahead), then look a performance graph. that graph will not care if you contributed $5000 once of $500 ten times in a given year. The data points are too small to be seen 30 years out.

So my advice is put the money in as soon as you have it. In my case I contribute $625 per month. That is all I can afford to put in. In August I need to stop contributions and Sept-Dec that money goes into our savings account or mortgage pay down account or some other account.

[vsjhoc]

I've been looking forward to this, because I finally got ahead. Last year I figured out that if I put $94 a week into a money market earning 5%, then I'll have $5k at the end of the year, so I'm ready to make my entire '08 contribution in January of '08.

Congrats on achieving the second goal on your list!

If you make the actual contribution in Jan. '08, it can be your entire '07 amount, because you can contribute to an IRA up to April 15 of the following year, right? How do you designate whether you are contributing to the prior or current year?

[bjl584]

I changed my monthly contribution amount on Jan 1st to reflect the increase. I too contribute to my Roth monthly as that is the only way that I can afford to do so at this time. I put 416 toward it the first of each month.

[RedHotLama]

This reminds me i need to fund last years.

[autoxer]

Congrats on achieving the second goal on your list!

If you make the actual contribution in Jan. '08, it can be your entire '07 amount, because you can contribute to an IRA up to April 15 of the following year, right? How do you designate whether you are contributing to the prior or current year?

I put in $8k last year, because I made my '06 and '07 contributions within 4 months of one another. When I did the transfer for my '08 contribution, Vanguard asked me to designate which year they apply to. It showed that I had already done the max contribution for '07, so it wouldn't let me select that year.