With just over two weeks remaining until April 15, millions of Americans are attempting to come up with as much money as possible to contribute to their IRAs.
You: Why now?
You have until April 15, 2008 to make a 2007 IRA contribution. Yet, like everything else we were supposed to do yesterday, we procrastinate as long as possible: instead of making our IRA contribution months ago, we try to make it right at the deadline. For some people, unfortunately, this time crunch means they won’t be able to make the maximum contribution.
You: How much is that maximum again?
For 2007, you can contribute up to $4,000 to an IRA provided that you have earned at least that much (or, if married, that your spouse has at least $8,000 so you can each contribute $4,000. Also, if you are 50 or older, you can contribute $5,000 for 2007.)
You: Four grand? That’s a good chunk of dough to come up with all at once. No wonder most people can’t come up with it in just two weeks!
Exactly — a textbook example of a legitimate financial cost resulting from procrastination.
You: Not sure I follow you. Four grand is four grand whether you have to come up with it in April 2008 or a year ago. How would not procrastinating help me come up with all that money?
Simple. Twelve months ago you would not have had just two weeks to come up with $4,000; you would have had 12 months. So, rather than needing to save $4,000 all at once, you would only have needed to save $333 a month.
You: Well, for me, that’s still a lot of cash.
Sure it is. But if $333 is a stretch, imagine how $4,000 would feel.
You: Don’t have to imagine. It’s impossible.
Right, but if you can’t get to $333, how close can you get? Perhaps next year, after a raise or reduction of debt, you may be able to afford more (which is a good thing, because the 2008 contribution limit is $5,000 ($6,000 for those 50 and over.)
You: So when is the best time to get started?
Today. You are never further from retirement than you are right now. By saving today, you not only make it easier on yourself by having to come up with less money all at once, but you also increase your benefit of the miracle of compounding interest, as your savings will have even longer to grow.
How do you make your IRA contributions? All at once? Whenever you have extra money? By putting away a set amount each month?