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]