Monday, October 01, 2007

Opening a Roth IRA

While I am not completely through with my debt snowball, I've been actively researching the options for opening a Roth IRA. I have also almost convince myself that I could get into one of the "monthly commitment" styled mutual fund companies for a small monthly contribution that wouldn't detract from getting much debt payed off. I actually think that in my case getting the inertia rolling early for contributing to the Roth would be better because I would have the "channels" open for when I could start contributing more.

I'm talking about monthly commitments of $25 or $50 dollars. If that is not a significant part of your budget, I think there can be a case made for getting that set up and treating it just like another bill if your budget allows for it. In mine, I think it does. I will start out with $50 and then crank it up to a lot more when my debts are all paid (except the house (and maybe my sweet 2004 Jeep Unlimited that I owe $12K on)).

My first immediate goal is to have my higher interest debt, about $5K paid off by the end of the year. Christmas complicates that. I do enjoy the holiday. I do enjoy buying presents. The difference this year is that I will budget and plan to have the CASH to pay for them this year. This might push this goal back to January 2008.

But in the mean time, I'm going to set up a Roth IRA and contribute $50 dollars a month. I want to also get a monthly contribution of $50 set up for my wife as well. Because she makes less, I will want to contribute to her IRA as well as mine, spousal IRAs were an important factor with me choosing to go with T. Rowe Price. Their sponsorship of NPR was also a factor with choosing them as well I am not ashamed to say. But this is the tale of me setting up my IRA with TRP.

First off I took advantage of the free membership benefits that Morningstar will provide anybody who fills out some form on their website. I am a long way from being able to justify their $140 annual premium membership, but they provide a lot of research value for free. I had decided to go with TRP, so first off I had to choose a fund from TRP.

Since I only wanted to test the waters, I chose one of their 5 star Growth funds,
T. Rowe Price Growth Stock (PRGFX)
. It looked like it could at least keep up with the market so it seemed like not a bad place to put $50 a month into. So with that pick, and a $50 dollar commitment I was off and running.

I needed a checking account that the money would be drawn from each month, I chose the Money Market account that I have set aside for Auto expenses. The thing about MM accounts is that the limited amount of transfers might lead you to use an underutilized one for a purpose you didn't intend to. But I can usually get by having a surplus in this account so it made sense.

That and getting through the verification process were the biggest hurdles, but not that big, especially if your are well aware of what is on your credit report. They use this info to verify you are who you say you are.

So I have completed this process, and excluding research into the fund that I wanted to choose, the process was shorter than twenty or thirty minutes. Now I have a $50 bill each month for a contribution but I don't have to think about it. It's gone from my money market account on the day of the month that I set up. This will utilize the "so-called" strategy of Dollar Cost Averaging. DCA is a popular, but actually not all that effective, strategy. But as long as you are investing, as opposed to NOT investing, it still makes sense. But it generally makes MORE sense to invest when you can, what you can, considering the cost of trading at levels which make it cost effective, as far as I can tell from what I've read.

So I've got a start on my Roth IRA. The current contribution rate will put me at a mere $600 dollars a year right now (with $4400 left to go), but hopefully I can really crank it up when the debts are paid off. I can also set my wife up with a similar IRA (probably will go with a different growth fund) that she can contribute to. I plan on setting up a similar deduction from her this month as well. Like I said, the inertia needs to be ready to go as quickly into savings as possible.

You know, much against the advice of Dave, my wife and I do have separate checking accounts. But I look at checking accounts like I do a pocket book. It's just something you put money into so I want to have a different checking account that I only have to keep up with the particulars of. I don't buy that they have to be combined, but that is an argument for another post. Otherwise its all about OUR money.

So thats my plan somewhat. Wish me luck. Unless of course you are some trolling hater. :-)



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