Graduated Learning: Life after College

I got my degree, I got a job…now what?

How often should I contribute to my Roth IRA? January 4, 2008

I came across an article that said that you could easily fund your IRA at $10.64 per day (assuming you include all year plus up to the following year’s tax day) up to the new limit of $5000 a year. The idea of the article was that it really isn’t that much money per day to fully fund an IRA (ooh, that rhymes!). But it got me thinking… how often should you actually be buying funds in your Roth (or any other account, for that matter)? I currently transfer money and purchase into a mutual fund through my Roth IRA once a month. Is that too often? Not often enough? I figured that having more purchases would help me in terms of dollar cost averaging. Though, if you see the criticisms on wikipedia or this article, it doesn’t seem like a necessity, and may actually hurt you. They say that it’s more of a marketing gimmick, so that you’ll be more willing to spend the same amount of money with less of a fear of losing money.

All this being said, I don’t mind this so-called gimmick. I hate losing money! It makes me feel more comfortable investing in retirement accounts, knowing that I’m doing something positive for my future, instead of using that money for other things (either necessary purchases, more fun purchases, or paying off student loans). So, I wont buy too often, because it seems like after a while it’s a bit useless to buy so often. So, for now, I think I’ll stick to adding every month. I could try adding all my money to the core money market account and eventually purchase funds.

I guess there are a lot of options. I think I’ve discovered that I’m not good with change when it comes to money matters. I should change my monthly amount towards the IRA to reflect the new limits, but I haven’t. I would end up just adding some in at the end of the year, like I did this past year (because I started funding it later in the year and wasn’t quite sure what I was doing yet). And I need to purchase funds with all that end of the year money that just ended up in my core account.

I think I’ll stick with the monthly contributions, so I can feel safer about investing. And I think I like having money more accessible in a checking or savings account longer than having it in a Roth IRA (though I know you can withdraw the contributions without penalty). I just need to up my contributions to the new monthly amount, and purchase funds with the money in the core account.

This is a much longer post than I originally intended to write, but hopefully you all will have some input or ideas of your own!

[Edit:  For 2008, the contribution limits are $5,000 for most people, $6,000 if you're 50 years old or older.  You still have time to max out your 2007 IRA to the $4,000 max ($5,000 over 50) until Tax Day, April 15, 2008]

[Edit on 1/24/09:  For 2009, limits remain the same]

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13 Responses to “How often should I contribute to my Roth IRA?”

  1. I can’t claim to actually know anything legit about this topic (although hopefully in a few years I will, since I do invest fully in my ROTH IRA), I’d imagine that it’s best to invest as much as possible when the market seems to be down and to not invest when it’s going up a lot. Over the past 9 or so months that I’ve had $4000 invested in my ROTH it’s been at $4300 at the highest and $3700 at the lowest (it’s at about $3900 now). That said, I really should put some money in, since it’s a new year. What are the new limits?

  2. abarclay12 Says:

    Just the fact that you actually have a Roth IRA makes me hate you in friendly, but envious way. Good job. And sorry, I have no idea how much you should contrib.

  3. Andy Says:

    I say max it ASAP, unless you have a better growth vehicle, in which case enjoy the growth and then max the IRA as late as possible. (IANAFA) :)

  4. Dollar cost averaging may not be perfect, but the fact of the matter is that the investment may loose some now matter how you invest over short terms, but over the long term the market goes up. You will be surprised how quickly the funds will grow over five years. When I was a senior manager, I was always trying to educate my younger managers on 401k or 403b or IRAs, but people felt they would miss the money too much. I am glad you are doing it, and I would say work out a payment plan that fits your lifestyle, but try to go to the limit each year if you can. Remember paying down debt, also pays down the interest that you will need to pay on that debt, so paying off credit cards is a good investment too in a way.

  5. Rattling the Kettle Says:

    Don’t worry about timing — as long as you’re putting in the maximum, you’ll do alright in the long run, whether you contribute hourly, weekly or monthly. The key is to contribute at a pace you are comfortable with, so that you don’t need to stop your contributions one month because your AmEx bill is too high.

    Slightly related: you would likely be better off maxing out on your 401(k) contributions ($15,500 this year) before making any Roth IRA contributions, unless you’re in a particularly low tax bracket.

  6. [...] than I usually have in a whole month.  It all started because FreeMoneyFinance posted a link to my post about Roth IRAs in a list of “Star Money Articles“.  Seems that many people followed that link to my [...]

  7. Tom Says:

    Like Rattling the Kettle above me said, I wouldn’t worry too much about the timing of your contributions. Even if you are just letting the funds sit in cash while you decide where to invest it, at least the interest that you earn will be tax-free.

  8. Chops Says:

    Good idea checking out the competition in Free Money Finance’s March Madness! I like the layout of your blog.

    I liked your article. In my IRA I usually do most of the buying January – April since it’s a new year and I get to fund it again. As you suggest, it’s probably not the best in terms of dollar cost averaging. But considering how 2008 went, I don’t know if it would’ve helped me anyway.

  9. [...] proud of to go “head-to-head” against another person’s post.  My post, How Often Should I Contribute to my Roth IRA? is competing against Chops Money’s post, What’s Wrong with Used Goods?.  I actually [...]

  10. [...] How often should I contribute to my Roth IRA? January 2008 10 comments [...]

  11. Daniel Says:

    Max out on your Roth. If you think taxes will be higher than when you put the money in then it makes total since. If Romney wins they your takes at retirement will be very high. If not, they they will just be high. All of this debt from Reagan/Bush2/the Bush 2 great recession has to be paid back when you are wanting to retire. And you won’t be paying it from your Roth withdrawals but you will pay taxes on the withdrawals on any other retirement funds you may have.

  12. Great advice. I really want to learn more about investing and IRA’s so that I can write about them someday, haha. Thanks for the insight!


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