Re: transferred too much to my Roth IRA

You see a bull market, so therefore the wisest thing to do is put all the money in early, so that you get an extra year's interest.

I see a bear market, so to me, the wisest thing to do is to put the money in at the last possible moment, to minimize the short term losses, while still getting the long-term tax benefits.

However, no one knows what the market will do. The most prudent course is to put a fixed amount in periodically; using dollar-cost averaging, you automatically buy more when the price is low, and less when the price is high.

Actually, that's a very wise idea! I was thinking in boxes.

But then, why lock your money up in an IRA at the beginning of the year? The 5 grand can accummulate interest in any stocks, bonds, CDs, mutual funds, regardless of whether it's in an IRA or a traditional brokerage account.

Say you're relatively young and starting out in life. You want to put away money in an IRA for tax benefits, but you don't have much financial cushioning otherwise. Instead of putting that $5k in an IRA, where there are penalties for pulling it if you need it, why not make sure it's available in an emergency, for 16 months, until April 15, but otherwise collecting interest?

I wouldn't call it desperate. In an era where a decent job outside of a major metropolis area is $30k to $40k, having an 'extra' $5k seems unrealistic. Yes, in Boston, New York, or California, $30-$40k might be near-poverty wages, but for the vast mnajority of the country, that's a middle of the road deal. You're asking people to have 1/6 to

1/8 of their yearly income just lying around *before the year even starts*. Well, I may not have an extra $5,000 at the beginning of the year, but assuming I'll work the whole year, I stand a good chance of having it then.

Again, examine the situation of a person in their 20s, making $30- $40k. They want to save $5,000 in their IRA, so they sock away $418 every month. Say that person finds themselves temporarily unemployed for 2-3 months, from Oct. to December. If they had put that money in an IRA immediately, they might have late credit card payments, late mortgages, late car payments, late student loan payments. If they had that money in an investment where they could pull it, then they could keep up their payments, and invest what they had left at the end of the year. If nothing happens, then they go ahead and put all of it into the IRA.

I think the wisest course is to save, in vehicle that has liquidity, and then transfer the maximum of that savings to the IRA just before April 15th. If you don't have the discipline to save, the whole conversation is moot. You won't be putting money into an investment account *or* an IRA. I'm talking about the smartest way to save, when you don't have much assets.

Okay, but I still don't seem the wisdom in the advice. It seems better to have liquidity, when you don't have much else.

You are completely on base. Someong just posed this question to me, I replied:

1) Pull a copy of Pub 590 from Go right to bottom of p32 for an explanation in plain english. Joe

I think the objectives should be confounded. The premise of economic inquiries is the best way to allocate scarce resources. I only make so much per year; with that amount, I have to buy food, housing, transportation, etc. etc. Part of what I'm doing with my limited resources is making sure that I have enough money for my day-to-day expenses, my 'emergency' expenses, and my retirement. So, I have sometimes conflicting interests with my money. With my emergency fund and my IRA contributions, I actually have intersecting interests in some respects.

I have my emergency account. Rather than making it unavailable to myself on Jan 1 and 'fly naked' for the rest of the year, I could keep it in a liquid asset for 18 months, and put it in the IRA on April

14th of next year. In the meantime, I continue to save, which goes into my emergency fund, which drains into the IRA at the last possible moment.

Well, I think that you can actually have both with a Roth IRA.

Since we are assuming limited financial resources, the Roth phase-out doesn't apply. It is also likely that the taxpayer is in a fairly low tax bracket.

And with a Roth IRA, you can always withdraw the _contributions_ tax (and penalty) free at any time. That means that you can safely contribute to the IRA, knowing that in a dire emergency, you can get the money you put in it out at any time.

The only drawback is that you forfeit any future tax deferred earnings on the amount withdrawn, since you can't replace it after 60 days. But it does allow you to move your investment into a tax-free vehicle while still being able to use the contributed amount if you need to. And if you don't need to get to the money, you are way ahead on retirement savings.