Making Your IRA Count

Whenever April 15th rolls around, we all get bombarded with ads reminding us to open or fund an IRA. While that is great, you want to make sure you are making the most out of your IRA and having it work for you. It’s so easy to get overwhelmed and not do anything. An IRA is an Individual Retirement Account. This means that once you open the account, you still need to invest the money in the account. There are three main areas you want to focus on:

• Streamline
• Funding the IRA
• Investing in the IRA

Streamline
Chances are you have more than one IRA. Perhaps you opened one at your bank or at your parent’s brokerage firm. Pick one place and consolidate all your IRAs. If they are in the same format (either ROTH or Traditional IRA), they can be consolidated to one IRA. Simplify your life and consolidate them all to a discount brokerage firm (like Fidelity) or a mutual fund company (like T. Rowe Price) or a full-service brokerage firm (like Morgan Stanley).

Funding the IRA
For 2006, you can contribute up to $4,000 and $5,000 if you are over 50. For most of us, this money goes in after taxes. If you are working for a company that has a 401(k) and you are not maximizing your contributions to the 401(k), you should try and do that first before funding your IRA. If you are working for yourself, or work for a company that doesn’t have a retirement plan, you should look at self-employed retirement plans like a SEP IRA. They let you put much more money in and on a pre-tax basis. However, if you have already maximized your contributions to the 401(k) or SEP IRA, then you can fund your IRA. If you don’t have enough to fund the complete IRA, consider setting up an automatic savings to your ROTH or Traditional IRA. This only comes out to $333 a month. Can’t afford that? Then do $100 a month and fund the rest at year-end.

Investing in the IRA
Make sure the mutual funds within your IRA are aligned with your retirement time line (5 or 20 years need different mutual funds). Keep this simple as well by only having 4 or 5 mutual funds and make sure they are completely different! If you have mutual funds within your 401(k) or SEP IRA, make sure you don’t have duplicates. It will make it much easier to do a checkup on an ongoing basis.