Thursday, February 5, 2009

Almost-Perfect Roth IRA Contributions

The contribution limit to a Roth IRA in 2008 was $5000. I set up automatic deposits from my paycheck so than X dollars went to Vanguard, and in Vanguard I set it up to divide that single deposit into Y% to the Roth IRA and Z% to my money market fund. I started my job in February, not January, so my math had to take that into account, too — divide things by 11, not 12.

Despite these factors, I ended up with $4998.36 in my Roth IRA account at the end of 2008. That means I was only off by $1.64, and that was only because I couldn't use enough precision in the Vanguard percentages! I so win.

So I bought myself $1.64 worth of shares to round out the 2008 tax year to the complete $5000 limit. I am pleased with my spreadsheet math. :) Oh, and having saved that money is pleasing, too, of course. ;)


smanoli said...

So, I'm wanting to set up my Roth IRA and I'm trying to figure out where to set it up. What made you choose Vanguard over other places?

Arthaey Angosii said...

I went with Vanguard based on my dad's recommendation and their low expense ratio (0.18%) compared to others. Googling suggests that Fidelity may also have low expense ratios for some of their funds.

The only major downside with Vanguard -- at least that I've run into -- is that their accounts generally require a $3000 minimum to open the account. So I just saved that up in my checking account to open initially; there's no minimum on deposits after that first $3000 has been met.

But don't let finding that "perfect" place to invest stop you from investing now. It's better to invest suboptimally than to not invest at all. :) The "target date" retirement mutual funds are simple to set up and relatively safe to forget about; it's what I'm currently using.

I'm trying very hard to ignore the current market performance -- I keep telling myself "long time horizon," repeatedly, until immune from this year's dismal returns. :P

Other useful links: Where to Hold Your Roth IRA