Should I contribute to 2007 Roth IRA or 2008?

Question

I'm totally new to all of this, but my husband and I are going to have the money to start contributing to a Roth IRA starting in January. It's my understanding that we can still contribute to 2007's Roth IRA until April 15th. Should we do that, or just go ahead and put it in for 2008??

(We're using his deployment pay, so we'll have enough to max out both years... I'm just wondering if it's worth it. I'm just starting to learn about all of this.)

Also, after we max out the Roth IRA, where would you recommend putting the rest of our savings? CDs?? We want to be able to take some out for a family car when the time comes, a downpayment on a house, or if an emergency comes up.

Thanks in advance!!

Answer 1

Roth IRAs are one of the best investments ever. You should initially put your money in the 2007 for both of you. Then you can still add to your 2008 until 4/15/2009.

Answer 2

A Roth has no current tax benefit; all of it is on the back end where all withdrawals are completely tax free. And unless you are very near retirement a Roth will usually be MUCH better than a traditional IRA for vast majority of taxpayers.

Although you can make a Roth contribution for 2007 up to the filing deadline there is no tax benefit for doing so. And you could possibly lose out on any gains between now and when you make the contribution. If you have the money now, go ahead and make the contribution now.

After capping out your retirement fund contributions, I'd suggest salting away at least 6 months worth of salary in short-term vehicles such as CDs or possibly a money market fund. You want something where you can get quick access to it for emergencies but preferably in another bank or financial institution than your primary checking account so you aren't tempted to use it for impulse purchases.

Once that's out of the way, look into mutual funds or direct stock investments. Be careful in choosing mutual funds, however! A poorly managed mutual fund might appear to make a lot of profit but if that's due to frequent trading within the fund you may have significant capital gains taxes each year even though you do not withdraw the money from the fund. Look for no-load funds with low expense ratios and low "churn" rates. Consumer Reports does one or two major articles each year that does an excellent job of comparing the real return on a wide basket of funds. I've NEVER been disappointed with their top picks and have done very well with most of them.

If you have a significant amount of disposable income that you wish to invest, both towards retirement and just to keep your money working for you I'd highly suggest that you get a consultation from an independent certified financial planner. Make SURE that you don't deal with one who sells any product other than advice and planning! Those folks are glorified stock brokers and insurance salesmen and are only interested in driving their own commissions, NOT your financial health. An independent will charge an hourly fee and the total bill could be a couple of grand if your finances are complex but their advice is worth every penny.

Answer 3

If you have the money to contribute to both 2007 and 2008 you need to do that. The benefits of a ROTH are great!

With the rest of the money you need to invest in a stable fund that will make you more money in interest than a savings account or a CD. These fund groups invest in a bundle of stocks and depending on which one you go with they can be either stable, volatile or a mix of both. Usually you can invest through a financial company like Edward Jones or Charles Schwab. You want to look at the history of this fund groups to see their historical earning percentages. A financial advisor should be able to help you.

Good Luck! You are making a good choice by investing.

Answer 4

Might as well go with 2007 and then ALSO work on 2008. With a ROTH there are no immediate tax implications, it's just that it's not taxable when you take it out when you are geezing. The more you can save the better. For other things like a car and house down payment, two completely different issues with different variables involved, just be careful. Buy a cheap car, don't waste money on cars, buy used and good quality, but for the house don't buy until you can put a down payment of at least 20%...so start seperate savings just for that purpose. Don't worry about emergencies, keep you credit cards payed off and they can always be used in an emergency, it's not worth taking more money out of your future house down payment for that unlikely event.

Answer 5

It turns out you can't deduct contributions to Roth IRAs in order to modify your AGI, but it still may be worthwhile looking at for the retirement savers credit.

So I guess it all depends on your 2007 AGI (adjusted gross income), and if you think you'll end up having more earnings to report this year or next year--in other words, if you can, you should try to use the Roth IRA to reduce your tax liability by applying the credit. If you are filing married filing jointly, and your AGI is $52K or less, then you get to claim the retirement savings contribution credit.

This tid-bit I got directly from the www.irs.gov website and found some inferrences to contributions to Roth IRAs in publication 590.

Answer 6

Do it for 2007, you may be in the same position in 2008 and you want to be able to do it. Fo rsavings for a reltavitely short term goal, check out the ING money market - recently rated the highest yielding one. You have max flexibility and little risk. Good luck.

Answer 7

you're able to do it now. Any contributions made after January 1st as much as the tax submitting time shrink (frequently April fifteenth)could nicely be special for the two the previous 365 days or the present 365 days.

Answer 8

Consider a traditional IRA. The deductible kind. (only if you don't have a current pension plan.)

You can deduct the contribution and your contribution will pay an immediate dividend in a tax refund.

Put the balance in a mutual fund.

Answer 9

BOTH.