For the first time since I opened my Roth IRA in March 2001 as a contribution for 2000, I have contributed the maximum to the account. Granted it is $4,000 for 2007, but I am proud of making it to this point. I managed to get to this point by making monthly contributions as well as using lump sums from tax refunds and the term life insurance cash out.
When my Roth IRA was first opened, it was during the tech stock bust, and my financial advisor suggested a Oppenheimer blend fund. I contributed $500 followed by a $200 contribution in 2001 and promptly lost half the value of the mutual fund. One of the finance seminars I attended at my credit union explained the various retirement vehicles including a Roth IRA. I considered it a way to get me closer to buying my own home as well as a retirement fund. However, $700 does not go far and I neglected my Roth IRA after the two contributions. By the time the fund came near the value I initially contributed (@ mid year 2006), I was tired of the small gains the fund made and the fees that would mitigate the gain.
In looking at my options, I read about index funds, what they are and why financial experts of various stripes recommended them. This sounded interesting and I decided I wanted to move my Roth IRA money into an index fund. Oppenheimer did not have any index funds so I had to look for a new option. My new financial advisor said I had to pursue the index fund option myself rather than having him take care of the money transfer. My 401(k) plan was with Fidelity, but I wanted to have some variety so I looked for other fund family options. Vanguard had a steep initial investment of $3,000. Since my Roth IRA was only worth $700, this was a problem. I chose T. Rowe Price since I could open with $1,000 as long as I invested at least $50 a month. So I rolled my Oppenheimer blend fund into the T. Rowe Price Equity Index 500. I managed to break even December 31, 2007. This meant my shares purchased over nine months were worth what I had contributed over the year.
With my lump-sum contributions to my Roth IRA giving me my first maximum contribution year, I have crossed the threshold of over $5,000 in my T. Rowe Price account. This means I can shed half the fees being charged to my account because my balance was less than $5,000. This means more of my money can grow.
I also wanted have a broader portfolio so I decided to convert my T. Rowe Price Equity Index 500 to the T. Rowe Price Extended Equity Market Index , a new index fund. It was probably not the best move to make after two lump sum investments and a 0.5% penalty for shares owned less than 90 days, but it is done. The new fund has an expense ratio of 0.4%, less than managed funds but a bit more than similar Vanguard funds. However, the difference was not enough to drive me to Vanguard so I will likely keep my Roth IRA with T. Rowe Price.
My next Roth IRA goals are to 1) contribute the maximum for 2008, which is $5,000, and 2) consider broadening my market exposure even further by purchasing an international index fund. The first goal will need more contributions than I am currently making and the second will require some research for the best plan. I will have to see how things go this year and what sort of tax refund I get as that is a substantial share of the money that funds my Roth IRA. I am confident that since I fully funded my Roth IRA once, I can do it again!