On August 31st I maxed out my Roth IRA for 2012 and it was a great feeling. Normally I’d max it out over the course of an entire year. This year was slightly different. I had a feeling I would be switching employers this year to move closer to my new townhouse.
Wait… what about 401(k) matching at my old job? My old job’s 401(k) automatically contributed 3% whether I contributed or not. Instead of putting money into a 401(k) I wouldn’t likely become vested in I contributed solely to my Roth IRA.
How I Maxed Out My Roth IRA
As I mentioned above, while I was at my previous employer I contributed all of my retirement savings to my Roth IRA every paycheck. To do this I had automatic transactions set up through Vanguard where I keep my Roth IRA. Every payday Vanguard would automatically purchase my set dollar amount of Vanguard’s Target Retirement Date 2050 Fund. It really was just as simple as that… until I switched employers…
At my new job I haven’t set up automatic purchases up yet. Part of it is being lazy and part of it is uncertainty in how the withdrawal would come out in relation to my paycheck being depositing into my account. Instead of the process being automated I now have to go on Vanguard’s website and buy my set dollar amount every paycheck. I still make my purchases every paycheck though and have never missed a purchase.
My new job has a different setup with 401(k) matching. I actually have to contribute to get my match like most people do. When I started my new job I made my Roth 401(k) contribution up to receive the full matching amount and then took the rest of my allotted retirement savings per paycheck and put it toward my Roth IRA. Now that I’ve maxed out my Roth IRA I have increased my contribution rate to my Roth 401(k) so that I am still contributing the same dollar amount per paycheck to my retirement fund.
How You Can Max Out Your Roth IRA
The easiest way to max out your Roth IRA is to set up automatic purchases that coincide with your paychecks. If you get paid 24 times a year you need to invest $208.33 per paycheck to max out for 2012 (assuming you’re under 55). If you get paid 26 times a year you need to invest $192.31 per paycheck to max out for 2012. If you receive a different number of paycheck a year divide $5,000 by the number of paychecks you’ll receive. If you are over 55 divide $6,000 by the number of paychecks.
This only works if you started with the first paycheck of the year. If you didn’t there is still hope! Just take the amount left to max out your Roth IRA and divide it by the number of paychecks you have left this year to get a per paycheck contribution amount. That might not be realistic though as 2012 is already 2/3rds over! Yikes… but there is some good news.
If you didn’t get started in time and still want to max out your 2012 Roth IRA contribution you can count all contributions made before April 15th, 2013 as 2012 contributions. It just takes a small tweak to the formula. Now you divide by the number of paychecks you will receive before April 15th, 2013 to figure out how much you need to invest each paycheck to max out.
Keep in mind these dollar amounts are for 2012 and may change in 2013. Also, there is a point where your Roth IRA contribution limits change due to your income. Make sure you know how much you are allowed to contribute to your Roth IRA before getting started.
Do you use a Roth or regular IRA and do you max it out? If you’re married do you both max them out?