Have you maxed out your traditional or Roth IRA for 2007? If not, you have until Tax Day to get it done, so you better get crackin’. Given that the maximum allowable contribution for 2007 is $4,000 ($5,000 if you’re age 50 or more), and assuming that you contribute once a month from now through April, you’ll need to squirrel away just shy of $667/month to reach the max ($833/month if you’re 50 or older).
Even if you can’t hit that mark, you should do what you can to pump money into your IRA. After all, IRA contribution limits are a “use-it-or-lose-it” proposition. If you fail to contribute in any given year, you can’t carry the unused portion of your contribution limit forward to the next year. And remember…
You can withdraw your Roth IRA contributions (but not earnings) at any time, for any reason, without taxes or penalty. Thus, even if you have other savings priorities (e.g., building up an emergency fund) you can safely stretch your budget and stuff a Roth with money.
(Note that this sort of withdrawal flexibility applies only to Roth IRAs, not traditional IRAs.)
Worried that some sort of emergency might arise? No sweat, you can always get your money back out if you end up needing it. And if things work out and you’re able to leave the money in place, then you’ll be one step ahead of the game. You can’t go back and make those contributions in future years if you miss your chance now, so do it while you still can.
Note that IRA contribution limits for 2008 are $1000 higher.
Sound like a plan? Just be sure to keep that money in a safe, stable investment if there’s any chance that you might need to pull it back out and use it in the near future. If things work out and you’re able to leave your contributions untouched for the long term, you can always move into more aggressive investments later.
Note: The point of this article is not to encourage you to raid your Roth IRA in a pinch. Rather, it’s to encourage you to take advantage of a Roth IRA even if you’re not entirely comfortable earmarking that money for retirement.