As you may have heard, the contribution limit for both the Traditional IRA and Roth IRA is increasing from $4,000 to $5,000 in 2008. This is a relatively large increase, and those who are age 50 or older have the ability to make an additional $1,000 contribution.
If you're like most people, you probably have an automatic IRA contribution that makes deposits each month or with each paycheck. Because you now have the ability to save an additional $1,000 next year, the best time to change the contribution amount is at the first of the year so that the impact on your income is minimized since the contributions are spread out over the course of a full year.
For example, if you are paid bi-weekly and you wanted to make systematic deposits into your IRA with each paycheck, you'd need to save roughly $193 every two weeks to make a maximum contribution of $5,000. Compare that to the $154 bi-weekly amount needed to fully fund the $4,000 max for 2007. As you can see, it is less than $40 every two weeks to make up the full $1,000 extra. It is a lot easier to come up with an extra $40 per month as opposed to waiting until the end of the year and trying to come up with a substantial amount.
You Still Have Time For 2007
Even though the end of the year is upon us, don't forget you can still make 2007 IRA contributions into the new year. You actually have until April 15th to make prior year contributions. This is good news for those who may be receiving a year-end bonus or other income that may come shortly after 2008 has begun. This also provides an opportunity to take advantage of last-minute deductions for Traditional IRA contributions.
If you're like most people, you probably have an automatic IRA contribution that makes deposits each month or with each paycheck. Because you now have the ability to save an additional $1,000 next year, the best time to change the contribution amount is at the first of the year so that the impact on your income is minimized since the contributions are spread out over the course of a full year.
For example, if you are paid bi-weekly and you wanted to make systematic deposits into your IRA with each paycheck, you'd need to save roughly $193 every two weeks to make a maximum contribution of $5,000. Compare that to the $154 bi-weekly amount needed to fully fund the $4,000 max for 2007. As you can see, it is less than $40 every two weeks to make up the full $1,000 extra. It is a lot easier to come up with an extra $40 per month as opposed to waiting until the end of the year and trying to come up with a substantial amount.
You Still Have Time For 2007
Even though the end of the year is upon us, don't forget you can still make 2007 IRA contributions into the new year. You actually have until April 15th to make prior year contributions. This is good news for those who may be receiving a year-end bonus or other income that may come shortly after 2008 has begun. This also provides an opportunity to take advantage of last-minute deductions for Traditional IRA contributions.
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