As a part of my 2008 financial goals, I plan to fully fund two Roth IRAs - both mine and my wife’s. The Roth IRA is one of the best investment options available. You can pay taxes now and owe zero taxes when you withdraw funds in retirement. Plus, there is no penalty to withdraw the funds in case of emergency up to the amount that you have invested. I also invest 12% of my pay (my wife invests 15%) not including matches in my 401K plan. The 401K has the opposite tax features — pay no tax now and taxes are deferred until you withdraw the money.

There are two catches to my Roth IRA goal — we have not funded my wife’s 2007 Roth IRA. That is $4,000 that we must catch up. Plus the limit for 2008 contribution increased to $5,000 each, so we need to invest $14,000 for this year. The good news is that there are two deadlines — The 2007 Roth IRA can be funded until April 15th, 2008 and the 2008 Roth IRA until the same day in 2009.

Beating the 2007 Roth IRA Deadline

The plan to catch up the 2007 Roth IRA is to use my bonus which will come in February. I am expecting somewhere between $4,000 and $5,000 after taxes.

And now the 2008 Roth goal…

How are we going to fund the $10,000 in 2008 Roth IRAs? For the most part, regular automated monthly investments. Vanguard has easy-to-use automatic withdrawal plans. The majority of the payments to fund the accounts over the year will be scheduled. No thinking or further planning is required beyond a ten-minute set up.

Tips for Funding your Roth IRA

1. Set a budget and include Roth IRA contributions.
2. Use Vanguard’s low cost funds and automate the investment dates to immediately follow your paychecks.
3. If your income is too high to contribute to the Roth, ask yourself (or a tax adviser) if there is any way that you can reduce your modified adjusted gross income (MAGI). See the IRS website.
4. $50 per month is better than $0, so put something in your Roth account. Remember, after April 15th, next year you can never fund this year again. I started funding my account several years ago with only $100 per month.
5. Consider raiding your emergency fund to fund your Roth IRA — select an appropriate investment (lower volatility) if you may need to withdraw the money for an emergency.

For two people to fund a Roth IRA now requires a monthly payment of $833 — not including the 2007 amount. I don’t think we can achieve that monthly payment considering the my other 2008 financial goals. There will probably be some small amount left to fund at the end of the year, but I will fill that gap with my 2009 bonus. The bonus is a big assumption, but that is what will need to occur to fully fund all our 2007 and 2008 Roth IRAs.

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