Finance Q&A: How Much Should You Invest in Your IRA?
- Deborah Nayrocker Crosswalk.com Contributor
- 2010 15 Jan
Is it best to invest in my IRA throughout the year or closer to the April 15 deadline? Should I always invest the maximum amount?-- Betty
Remember that an individual Retirement Account is nothing more than a basket for you to accumulate your earnings tax-free until you withdraw them. IRA's can be opened through different accounts such as banks or credit unions, a mutual fund company, a brokerage firm, or an insurance company. They offer a variety of choices, including CD's, savings accounts, U.S. Treasury bills, bonds, a variety of mutual funds, individual stocks, and annuities.
If you're not naturally disciplined, it's usually best to automatically fund your IRA from your paycheck. If you invest through mutual funds or individual stocks, by investing periodically you can benefit from dollar-cost averaging. This cushions the share price fluctuations. Investing earlier in the year over the course of many years can create a monetary advantage.
Before you decide on the amount going toward your IRA, set out your goals first.
Do you have an adequate emergency fund? Do you have money set aside for annual real estate taxes, auto insurance, and other anticipated expenditures? Is there an education fund? What you don't want to do is have to withdraw money early from your IRA for nonretirement outlays and get stuck with hefty penalties later.
Since the IRA is tightly regulated by the government, be aware that these accounts are for your long-term retirement needs. It is important to have an allotted amount of cash set aside for short-term needs first.
Copyright (c) 2010 Deborah Nayrocker. All rights reserved. Permission to reprint required.
SEE ALSO: Investing 101 -- A Primer
January 18, 2010
Deborah Nayrocker is the author of The Art of Debt-Free Living and the popular Bible study Living a Balanced Financial Life. She is an award-winning writer and columnist.