Thursday, March 25, 2010

How I fully funded my Roth IRA

Crossword puzzle and pencil

For the past three years, contributing the maximum to my Roth IRA has been one of my financial goals. This is one half of my annual retirement investments, which also includes my work-sponsored 401(k) with a 3% match. My Roth IRA account resides with T. Rowe Price and is comprised of three index funds. Not only have I given the full contribution for the last three years, I am looking to fully fund my Roth IRA within the same calendar year rather than using the grace period until tax day the following year. How did I do this?

I do my taxes at the beginning of February so I can quickly get any money I am owed back from the government. This year, due to my itemized deductions as well as tax credit for four energy-efficient window replacements, I received a larger-than-expected refund from the federal government and approximately the same amount back from the state as I have for the last two years. Combined, this money was able to finish funding my 2009 Roth IRA, fully contribute to my 2010 Roth IRA (based on the amounts automatically invested each month) and still have a bit left to fund other savings goals. This is not a typical situation for me, but meant that I did not have to increase my monthly Roth IRA contributions to fully fund the account for 2010. This is the first time since I opened my Roth IRA that I was able to contribute the maximum amount in a calendar year.

As a result, I opened a third bond index fund to complement my extended market index and my international index funds. I want to keep a diversified portfolio and feel that adding a small amount of bonds to my investment choices would be beneficial. This is less than 10% of my Roth IRA and and even smaller fraction of my total retirement investments so for someone in her late 30s, I am not going too conservative.

At this point, I am looking forward to my 2011 Roth IRA which hopefully, will have an increase in the maximum contribution amount. It has been stuck at $5,000 for the last two years. If my tax refund is similar to this year's amount, I should also be able to fully fund my Roth IRA and contribute to my savings goals as well.

Have you opened a Roth IRA and have you made the maximum contribution?

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