fling93 loves fishies

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Don't Wait, Open an IRA!

Argh! I still haven’t filed my taxes, and even worse, I still haven’t written my long-planned blog post on the Roth IRA!

Okay, until I get to it, here’s the gist of what it’ll say:

• If you don’t already have a Roth IRA, open one now and contribute to it!
• If you already have a Roth IRA but haven’t contributed to it for 2003, contribute to it now!

In a weird quirk of the tax laws, you actually have until April 15th to deposit your Roth IRA contribution for the 2003 year, although you could also contribute for the 2004 year as early as the beginning of this year (yes, there’s an overlap). Generally, it’s advantageous to contribute to it as early as possible (yes, I’ve personally already made my 2004 year contribution), but it’s better to contribute late than not at all, and note the restrictions on IRA contributions per year, while increasing (thanks to the EGTRRA), are still much more restrictive than your typical 401(k) plan, so it’s pretty important to contribute every year that you can.

This all assumes you are eligible (if you make less than six figures, you’re generally okay). Also, note that if you still have credit card debt, it’s better if you pay off that debt first because the interest they charge you will be much higher than you can earn. Similarly, if you aren’t already contributing the maximum to your 401(k) plan or equivalent, it’s better to fund that first. Note that capital gains and dividends earned within Traditional IRAs are tax-deferred and aren’t taxed at all in Roth IRAs. 401(k)’s are even better — they’re tax-deferred and the contributions are fully tax-deductible (again, I’ll explain what they all mean in my “real” post). Sometimes your employer will even offer matching funds to boot! So it’s generally the thing to fund first, and then funding a Roth IRA with money left over after that (or a Traditional IRA instead if you’re not eligible for a Roth).