We don’t have any huge financial goals right now, so we thought we’d set one: maxing out both of our IRAs. We’re already contributing to retirement, but we figure more is better while we’re young and don’t have other pressing needs. We skipped out on IRA contributions for most of 2011, so we’d like to catch up.
We’re putting a little bit extra toward our mortgage (since even small contributions make a big impact) and we’re contributing some to our kids’ 529 college plans.
For our age, we can each contribute $5,000 to our IRAs. We’ll have until tax day in April 2013 to make all of our 2012 contributions.
We set up automatic transfers from our bank to our IRAs at Vanguard, to occur a few days after each payday.
Until recently, we were contributing $116/each biweekly ($3,016/year).
The other day, I adjusted our automatic contribution to $125/each biweekly. Bumping it by just $9 means an extra $234 per account, or $3,250.
Even increasing our contribution by $4 on a biweekly basis would add $104 more per year.
Shane was blessed to receive a cost-of-living raise effective in his most recent paycheck. We took most of the increased amount and set up an automatic bi-weekly transfer to go to a new sub-account at our bank at ING Direct. The sub-account is labeled “IRA.”
Bi-weekly, $50 will go to the IRA sub-account. In a year’s time, we’ll have $1,300 there plus a few dollars in interest.
Why not put that $50 in our IRAs at Vanguard from the get-go?
Well, I’d like to have a little bit of a buffer. If the tax laws and credits change this year, it would be nice to have some additional money in savings so we can pay our taxes if we need to. Or, we could use the money for another purpose (like a medical deductible). If nothing comes up between now and then, we’ll put $650 in each IRA.
That brings us to a hypothetical $3,900 in each IRA. “Just” $1,100 each to go.
It sounds like a lot of extra money to scrape together, especially when we’re already doing our darnedest to save.
Before I calculated the exact dollar amount, it was so vague that it wasn’t even a goal. Now, we know we need to come up with an extra $2,200 somewhere, total.
Shane will have a third paycheck in June and again in November. After all the other bills and savings goals are accounted for in those months, we should have a few hundred dollars available to put in the IRA (or IRA savings fund, whichever).
Second, he is supposed to receive a bonus twice per year. Assuming that goes as scheduled, we’ll be able to tap some of the bonus money for the IRA. If the bonus goes away, well…we weren’t counting on it for something critical so it’ll be ok. We’ll be disappointed, but we’ll be ok. :)
Other income sources to fund the remaining $2,200:
- My blog earnings. It’s drying up fast over here, though and I think it has to do with the “big G’s” search changes. Ugh.
- Selling unwanted things on eBay, as always
- Our tax refund from 2011, assuming we don’t spend it all elsewhere we’re replacing our kitchen countertops and doing some things to the yard) and then our medical expenses from a few days ago.