Kyle and I have deviated from our normal Roth IRA contribution setup. Our normal routine is to each make bimonthly contributions (working out to about once per week between the two of us) to our Roth IRAs and make additional contributions when we receive extra paychecks. Despite my intense desire to max out both our Roth IRAs, we were several hundred dollars short of maxing out our 2012 contribution at year’s end. In previous years we would have just gone on as normal making our contributions since we had no immediate plans to try to max out.
However, since Kyle will be graduating in 2013 and increasing his income substantially, we think there is a distinct possibility that we could max out our Roths in 2013 – or save even more. Since my account had the contribution room left under 2012, we decided to switch my regularly scheduled contributions in these first couple months of 2013 to be categorized under 2012 instead (which you can do until April 15) until our 2012 contribution is maximized. We don’t yet know if Kyle will have access to a 401(k) at his postdoc so we may need all the contribution room we can find in our IRAs once we get that income boost to keep up our desired savings rate.
While we’ve never done this in the past, it really just seems like a bookkeeping change, not one that actually affects our investments. Our bimonthly contributions are going into the same fund as always on the same schedule for now so we are still dollar cost averaging as we like/have to – we’re not trying to time the market or anything. It will be straightforward to increase our contributions when Kyle starts his new job and the income we anticipate is realized.
I contacted Vanguard about whether or not my contribution would automatically switch back to being under this year when I met last year’s contribution limit. They said that the account wouldn’t allow me to over-contribute under last year but wouldn’t automatically continue the contribution under this year. I’ll have to manually buy the remainder of the individual contribution in which we meet the limit and then set up a new recurring contribution for the next installment.
This whole process has made me question whether we should have been doing this all along – well, whether I should have, as Kyle has maxed out his Roth IRA each year for several years now. Should I have had contribution room snowballing for several years now, to the sum possible to fit in between Jan 1 and Apr 15 with our savings rate each year, waiting for that year when we can max out the current year as well as the room left from previous years?
Are or did you contribute to last year’s retirement income this year? Do you vary your contributions throughout the year or keep them steady? Have you tried to snowball contribution room over multiple years?
photo from Free Digital Photos