Tuesday is Tax Day (and 2007 Retirement Account Contribution Deadline); What You Should Do Between Now and Then

With the Tuesday tax filing deadline approaching, hopefully, most of you are awaiting your refund from (or payment to) the IRS. Aside from the tax filing deadline, April 15th each year is also the deadline for maximizing your contributions to the prior year's IRA account. Regardless of whether you have a Traditional or Roth IRA, you have until Tuesday to make your final 2007 contributions.

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Tuesday, April 15th is the deadline for 2007 Investments

If you haven't started an IRA yet, you should strongly consider doing so by Tuesday. You can do so by contacting a mutual fund company (I recommend Vanguard Funds since they are by far the lowest cost family with a full cohort of index funds, which are ideal for long term investing) or if you like invest in individual equities and can't get the mix you're looking for, consider a self-directed IRA with a low cost trading account like E*Trade or Ameritrade (Zecco actually has several free options available with a unique business model). I actually have some assets with Vanguard mutual funds and also invest in high yield stocks in my self-directed IRA account for the tax advantaged capabilities. It's really quite simple to set up either type of account and there's plenty of time to do so between now and midnight Tuesday. If you miss it, now's as good a time as any to start your 2008 contributions.

The maximum for an IRA contribution in 2007 is 100% of earned income or $4,000, whichever is less, for an individual under the age of 50. Individuals aged 50 and older can contribute up to 100% of earned income or $5,000 whichever is less. For 2008, the limits are $5,000 and $6,000 respectively.




Is Your Refund Too Big?

Mine was. If your refund is several thousand dollars in April, you've effectively loaned money to the government interest-free for the past year instead of investing those funds along the way. Some people like the idea of getting a nice, hefty rebate check and using it for vacations, big screen TVs, or whatever their pleasure and as an added bonus, you get to tell your spouse what a big refund you're getting this year. Imagine if you planned it perfectly and had a nominal hundred dollar refund or payment due. You'd have to endure your wife saying, "How come Johnny and Jane got back $5,000 this year and we got nothing!". If you can stomach this conversation with your spouse and have the discipline to invest it in an interest bearing account or putting into your retirement funds, you're really better off having the money along the way.



I had my Dependents set at 2 for my withholding with my employer, have 2 children and took on a decent-sized mortgage a year and a half ago. So, my refund was much bigger than it should have been if I had planned appropriately. Not that it feels all that bad now, I'll be OK, really. But the first thing I need to do is up my exemptions to at least 3!


Sources:


http://en.wikipedia.org/wiki/Individual_Retirement_Account#Funding

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