Roth funding?

[Bimmer]

I'm curious to know the methodology people use to fund Roth IRA's. Not what investments to make, but how/when you send money into the Roth.

Do you break the $5k into monthly or quarterly installments? Try to feed as much into it as possible, as quickly as possible so its done and you can focus on other things the rest of the year?

We have my wife's Roth going strong this year and hope to max it out. I've got mine going, too, but we won't max it (still finishing up a car loan debt). We want to make sure from 2010 on they are maxed, but we are debating the best ways to fund them.

On a related note, how do you make investments. I know to dollar cost average, but what is a good interval for a Roth? Every month, every three months, etc?

[kork13]

I get paid the 1st and 15th of every month, so I basically do all of my investing on the same schedule. For both my Roth and my regular investments, I have the amounts automatically invested the day after my paycheck comes in. I find that adding money to my investments every two-ish weeks works quite well for me... It's a short enough period that even doing DCA, I still catch the general highs/lows, but long enough that it's not a pain in the butt to deal with.

For the Roth this year, I front-loaded it a little bit while the market was on the way down, but by February, I was on a regular schedule, set to max it out by the new year.

[GREENBACK]

I DCA once a month in general but did front load this year and maxed out in March. Got lucky with the market rebounding this year

[creditcardfree]

We have our Roth's set up to DCA each month. We are paid on the 1st and 15th and send in the money from our 15th paycheck. We max ours out as well, so this works out to be $416.67 each per month.

Ours are set up as an automatic investment with the investment company pulling the above amounts from our checking account on the date we requested. Easy.

[Bimmer]

Thanks for the responses!

We have the ability (and use it) to make automatic tranfers from our checking into the Roth's, but it goes into a money market account there until we make fund purchases.

I'm leaning towards making ten, $500 per Roth, payments Jan-Oct, so in November-December we have "extra" money in the budget for debt/EF building/vacation fund/holiday gift shopping/etc.

I think we will make monthly purchases in the Roth, though.

[DC Metro Crab]

Before I had a budget, I used to max it out in a lump sum right before the April deadline. Since I didn't track money then, it came out of the lump pile I had in savings. I was essentially a full year behind doing it this way, IE I would max out 2007 contributions 4 months into 2008. I then started a budget and my savings slowly caught up enough so that I could put in a monthly line item for the Roth IRA and max it out via DCA by the end of the calendar year. This is a pure personal preference.

[MonkeyMama]

It just depends. Before, we primarily contributed for tax savings. So we would wait until April the following year to determine how much we should put in (regular IRAs anyway).

We've converted them all to ROTHs since. We primarily contribute to employer retirement plans, but now since retirement is our savings priority, we put it in when we have it. If we could put it all in January 1, that would be great. Instead, for now we put in $400 every month - making an automatic transfer with every paycheck.

We decide every April if we can contribute further (2 ROTHs between the 2 of us). I was considering putting another $3k to our ROTHs this year, but we just had an unexpected $3k expense. Probably won't happen. This is precidely why I prefer to wait. On a good year we can max out easy. In a bad year, we probably shouldn't. But a couple of years ago we received a $5k gift around April, so we maxed out our second ROTH for the year prior. It can easily go both ways.

I personally like adding in money every month - it really smooths out the ups and downs of the market. It's really nothing more than psychological, but it makes it easier to ride out the ups and downs.

[disneysteve]

I get paid every 2 weeks. I set aside a set percentage of my gross to fund our Roths and transfer money every 2 weeks until they are maxed. I usually have them maxed by June each year. Also, any tax refund gets sent to the Roths also.

[JustDave]

I contribute monthly but not for any DCA purposes (although that's an added benefit).

I'm sad to say that I'm not always the most disciplined saver/investor, so if I have the money on hand I can always find some other use for it. By having it withdrawn automatically and treating it like a bill, it takes away that temptation.

[happygirl]

Sorry to sound uneducated about this, but I am. So what's DCA?

Also, when you set up the IRA's (Roth or traditional) are they set up so that you simply deposit the money (on whatever schedule you choose), then the bank/financial person knows how much to put where based on what you've already chosen?

[disneysteve]

happygirl, if you never ask, you never learn.

DCA = Dollar Cost Averaging; investing a set amount of money on some regular schedule (monthly, quarterly, etc.) so that when the market is down, you get more shares for your money and when the market is up you get fewer. Over time, this should result in you paying a lower average cost per share.

[Bimmer]

Sorry to sound uneducated about this, but I am. So what's DCA?

Also, when you set up the IRA's (Roth or traditional) are they set up so that you simply deposit the money (on whatever schedule you choose), then the bank/financial person knows how much to put where based on what you've already chosen?

We have an online account with one of the major brokerage places. We have setup monthly withdrawals from our checking account to online Roth. This money is held in a cash fund (money market fund) until we schedule purchase decisions, which we also do monthly.

[happygirl]

Thanks!

[FrugalIII]

You know it would be really nice if the government would raise the contribution maximum on Roth IRAs. I'm over 50 so the max I can contribute is $6k a year. Why don't they raise that to $10k or more? I have no 401k at work so this is my only retirement account.

[disneysteve]

You know it would be really nice if the government would raise the contribution maximum on Roth IRAs. I'm over 50 so the max I can contribute is $6k a year. Why don't they raise that to $10k or more? I have no 401k at work so this is my only retirement account.

I'm with you 100%. My Roth is my only account, too. The problem is they created the IRA and didn't index the contributions for inflation, so the limit sat at $2,000 for about 20 years. Then they finally started raising it to the current $5,000 ($6,000 over 50) and it will rise with inflation going forward, but it still isn't nearly enough. I believe only about half of all workers in this country are eligible for a 401k so for lots of us, it is the IRA/Roth or nothing. The fact that 401k folks can put away $16,500 but I can only put away $5,000 is ridiculous. The limits should be the same.