by Trent Lorcher

Created on: May 16, 2008   Last Updated: May 19, 2008

My friend Bob tried to convince me to max out my Roth IRA. He said I could contribute up to $5,000 in 2008. Because he's over 50, Bob gets to contribute $6,000 in 2008. Why in the world would anyone do that?

I keep telling Bob to live a little: buy a house he can't afford; get an impractical, gas guzzling automobile; maybe upgrade his cable package. I don't know about you, but I plan on working and struggling for the rest of my life.

It's like Bob wants to retire or something. In fact, he told me he's retiring in 2 years. He said he'll be comfortably set for the rest of his life at age 59.5 (that's when he can begin withdrawing his Roth IRA money, tax free); he's been contributing the maximum yearly amount to his IRA since 1974 and to his Roth IRA since 1998.

While he was out paying for things with cash, living within his means, and dumping all that money into his Roth IRA, I was living it up with my former wife (she left me because of money problems), charging high ticket items I no longer have, and working two jobs to make the payment on my interest only mortgage.

Bob told me I should set my Roth IRA contributions up automatically, and that every time I get a raise, I should increase my Roth contribution until it reaches the contribution limit. I told Bob that I need to make sure I have everything else paid first, the important things: my cable bill, my magazine subscriptions, my tobacco habit, my dining out bills, and my psychiatrist bill (I've been under a lot of financial stress lately).

Bob just doesn't know how to have fun! He's been trying to cram this save for retirement in a Roth IRA thing down my throat for 10 years now. In addition to the limits, he told me some additional contribution rules for a Roth IRA:

1)Unlike a traditional IRA, the money I contribute to a Roth IRA is not deductible from my taxes; it does, however, grow tax deferred and is tax free at withdrawal as long as the Roth IRA has been held for at least 5 years.

2)To be eligible, my annual income needs to be under $101,000 if single and $159,000 if married filing jointly.

3)My income has to be earned, which means the money I contribute to my Roth IRA cannot be from an inheritance, interest earned off other investments, rentals, etc.

4)There is no carry over from year to year. If my 2007 contribution falls $1,000 short of the limit, it cannot be made up the following year; however, any contribution made before April 15, can be counted toward my prior year's contribution.

5)Starting in 2009, the contribution limits will increase by $500 yearly.

6)Any money contributed to a traditional IRA counts toward the contribution limit on a Roth IRA.

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