Every year my wife and I make a point to max out our Roth IRAs.
Why use a Roth IRA when we could use my wife’s 401(k) instead?
Because we get to choose where we invest the money and we aren’t limited to her employer’s 401(k) options.
If you want to max out your Roth IRA, here’s how we did it and how you can do it, too.
How I Max Out My Roth IRA
Many years ago I opened up an account with Vanguard, one of the lowest cost investment management companies you can find. At the time, I contributed what I could to my Roth IRA, but I didn’t always max it out.
Thankfully, I’m in a better financial position and can now max it out every year. There are many ways you can max out your Roth IRA. For the last few years I’ve maxed mine out the same way every year.
Each year, I research the maximum Roth IRA contribution I can make and make equal investments each pay period throughout the year.
Since I no longer work in a traditional job, I just make purchases on my wife’s paydays to keep things simple since she maxes out her Roth IRA, too. I’ll share exactly how you can do this in a minute, but first here are some other ways you can max out your Roth IRA.
Ways To Max Out Your Roth IRA
You don’t have to invest in equal amounts throughout the year like we do. Instead, you can invest in lump sums throughout the year or even in one lump sum, if you’d rather.
Many people invest in their Roth IRA just prior to filling out their tax return each year. Others like to max out their Roth IRA as soon as the year begins to keep their money invested for the longest possible time.
In the long run, maxing out your Roth IRA is what is important. Not how do you do it.
How You Can Max Out Your Roth IRA Like We Do
The easiest way to max out your Roth IRA is to set up automatic purchases that coincide with your paychecks.
If you get paid twice a month divide the maximum contribution by 24 to get your per paycheck amount. Do you get paid every two weeks? Do the same but divide by 26.
If you receive a different number of paychecks a year simply divide the maximum by the number of paychecks you’ll receive.
If you are over 55, don’t forget to use the limit that includes the catch up contribution.
What Happens If You Don’t Start At The Beginning Of The Year?
Keep in mind, this only works if you started with the first paycheck of the year. If you didn’t there is still hope. Find the amount left to max out your Roth IRA. Then, divide it by the number of paychecks you have left this year.
The result shows you the per paycheck contribution amount to max out your Roth IRA.
If you start late in the year, it might be difficult to max out your Roth IRA if your budget is tight. Why? You may only have a few months to make the investments. Thankfully, there is some good news.
If you didn’t get started in time and still want to max out your Roth IRA contribution for the year, you can count all contributions made before tax day of the next year as current year contributions.
It just takes a small tweak to the formula. Divide by the number of paychecks you will receive before tax day to figure out how much you need to invest each paycheck.
Make Sure You Qualify Before You Start
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.
You can find information on the limitations and contribution limits for the current year here.
Do you use a Roth or regular IRA? Do you max it out? If you’re married, do you both max them out?