As preparation for 2010, I’ve spent some time updating automated contributions to various retirement, education, and cash savings accounts. Here’s the breakdown -
My Retirement Accounts -
403(b) – Monthly amount = $1375
A percentage of pre-tax income is deducted from each monthly paycheck.
Roth IRA – Monthly amount = $312.50
My goal is to make the maximum allowable contribution for 2010. For my situation, that’s $5000.
My Wife’s Retirement Accounts -
Roth IRA – Monthly amount = $312.50
My wifes’ goal is to make the maximum allowable contribution for 2010. For her situation, that’s $5000. She also makes pre-tax contributions to her pension plan.
Education Savings Accounts -
ESA 1 – Monthly amount = $125
The annual contribution limit for my oldest daughter is $2000.
ESA 2 – Monthly amount = $125
The annual contribution limit for my son is $2000.
ESA 3 – Monthly amount = $125
The annual contribution limit for my youngest daughter is $2000.
Cash Savings Account -
Automobile Replacement – Monthly amount = $500
At some point, we will need to replace one of our automobiles.
Future Home Purchase - Monthly amount = $500
At some point, we hope to pay cash for a new home (or use available savings for healthy down-payment).
Summary -
The total of all monthly contributions, excluding my wife’s contributions to her pension, is $3375, which represents a very substantial portion of our household income. It’s important to note, some contributions, those to Roth IRA and Education Savings Accounts, are calculated for a 16-month contribution timetable, running January of 2010 until tax-filing deadline April 2011.
As we continue to live debt-free, my wife and I have come to realize just how important it is to save, save, save – and then save some more. We set lofty goals for ourselves, including the contribution goals that you see above.
Hey NCN – Do you also set aside money for irregular expenses (insurance, auto reg, etc) or do you account for them in your monthly budget?
SingleGuyMoney – I budget for them, each month, and put the money in a savings account. I also have a standard “emergency fund” from which I could pull money, should I need it sooner than regular budget would allow. What about you?
Nice to see a new post. I thought you were MIA
Hello,
I see you’re contributing $312.50 monthly to your Roth. However, $5000/12 = $416 per month.
What you may be doing (and what warrants further discussion), is making 2010 Roth contributions before April 15, 2011; thus giving yourself 16 months to get in $5000. Indeed 16*$312.50 = $5000.
However, I’ve thought about this, and I’m not sure it’s the best idea. In your case, you’re depositing $625 per Roth (half for 2010 and half for 2011) in the first four months of the year, and $325.50 in the other eight. Thus, you’re systematically oversampling the market in the first four months, and biasing your dollar-cost-averaging towards Jan-April.
Is this intentional (part of your strategy) or a minor oversight?
Thanks!
What happens if you contribute monthly to a ROTH IRA but than find out during tax time of the next year that you made to much to contribute, what happens?
Welcome back! Missed you!
That’s a lot of money into tax-advantaged accounts. Do you keep enough outside as well?
@Boyan I suppose you are correct. Keep in mind, I’m still making contributions to my 2009 IRAs, and will do so for the next 5 months. (Dec – April)
@Matt I’m 99% sure that I won’t make too much to make maximum contributions. If I WERE to get close, I’d just hold back on the contributions from say January to April…
@mbhunter It’s good to be back! I keep a 12 month emergency fund in my savings account…
Good for you. This posts makes me a little sad though as your 403(b) contributions are more than my biweekly income.