Roth IRA vs. Regular IRA

You: Why are you talking about IRA’s now?

What do you mean?

You: It’s the dog days of summer.

Huh?

You: April is over, Michael.

So it is.

You: Most people only concern themselves, or in your case write about, IRAs during April.  Why is that, anyway?

Because the due date for contributing to an IRA for the previous tax year is the filing deadline of your tax return, typically April 15.  But April 15 is only the cutoff date;  you could contribute to your IRA right now if you wanted to.

You: Why would I want to contribute today if I could wait until next April to do so?

For at least two reasons. First, the earlier you contribute, the sooner you benefit from tax-deferred (regular IRA) or tax-free (Roth IRA) growth.  Second, by not waiting until the very last minute, you may be able to contribute more money.

You: Why do you say that?

The annual maximum contribution allowed is currently $5,000 ($6,000 if you are 50 or older).  But few people have $5,000 laying around right at the deadline.  More likely: a few dollars each and every month.  With 10 months to go before the deadline for 2010 IRA contributions, you could contribute $5,000 to your IRA without ever transferring more than $500 a month in the account.

You: That’s still a lot of money each month.

Indeed it is. But, when you’re struggling to save for retirement, don’t look at an IRA as an all-or-nothing proposition. Whatever you can manage to save is worth it. It will make a difference.  But saving a little bit each month is far more likely than squirreling away a big lump sum in one shot at some point in the future.

You: But then I have to choose between a regular IRA and a Roth IRA. How do I do that?

Fortunately, I recently posted Roth IRA or Regular IRA – Choosing an IRA at my About.com retirement site.  Take a look!