Interesting Money

If you have an IRA (and you should!), the deadline for contributing money allocated for 2006 is April 17, 2007. After that date, any money that you invest is considered an investment for 2007.

I have both a Roth IRA and a Traditional IRA, but right now I’m only contributing to the Roth. I have about $900 remaining that I can invest for 2006, so within the next week or two I will max out my contribution. The current contribution limit is $4000 per year, but that amount will go up to $5000 starting in 2008.

If you can afford it, it’s important to max out your IRA contributions since you can never go back and add money for a particular calendar year once the deadline has passed. In the case of a Roth IRA, you can also withdraw your contributions at any time for any reason, so a Roth can double as a savings account. Most people don’t recommend withdrawing anything from a Roth IRA, though. You want ALL of that money compounding away!

To illustrate, if you skip one entire year of contributions (at $4000), over a period of years that initial lost amount adds up. At a fairly conservative estimated yearly return of 6%, over 35 years that $4000 that you did not invest turns into at least $30,744 of lost future income. Ouch!

If you’re just starting to invest, a Roth IRA is a smart choice. In a nutshell, you invest after-tax dollars, and Uncle Sam allows that money to grow in peace, without any taxes. Once you reach age 59.5, you can start to withdraw your earnings.