A few days ago, I told you about my biggest financial regret of 2012 – failing to even establish a flexible spending account, or FSA, through my husband’s work for our medical expenses. Now, I’m going to look at the glass half-full, and share my biggest financial accomplishment of the year: fully funding my Roth IRA.
2012 Roth Contribution Limits
We all know there are plenty of rules when it comes to contributing to a Roth IRA. Here’s a quick recap of the 2012 Roth contribution limits:
- If you’re under age 50, you can contribute up to $5,000 per person (for the 2013 tax year, this contribution limit goes up to $5,500)
- If you’re 50 or older, you can contribute up to $6,000 per person (this goes up next year, too, to $6,500)
- You can’t contribute to a Roth IRA at all if you your adjusted gross income was more than $183,000 (married, filing jointly) or more than $125,000 (single, head of household, or married filing separately); you can only contribute a reduced amount of your pre-tax dollars to a Roth IRA if your AGI was between $173,000-$183,000 (married, filing jointly) or $110,000-$125,000 (single, head of household, or married, filing separately)
- You have until April 15, 2013 to make contributions to your Roth IRA and have them counted for the 2012 tax year
How I Got To $5,000
Heading in to 2012, fully funding my Roth IRA was a main financial goal of mine. I’d come close in previous years, even when my income was down and money was tight, but I was committed to making it happen in 2012.
I started by making not just monthly but weekly contributions. I knew that over the 52 weeks of 2012, I’d have to average just over $96 a week to achieve my goal. Still, I started below that average, as my first quarter workload has, since the start of my freelance career, been notoriously light. I began by contributing $75 a week through January and February.
During that first quarter, I started working as a staff writer for several personal finance sites, bolstering my bottom line and giving me a clearer idea of exactly how much money I’d have coming in on a regular basis. Then in March, my biggest contractor (which is outside the PF/blogging field) gave me a huge assignment, which gave me the confidence to increase my weekly Roth contributions to $100.
By the end of May, I’d contributed a total of $1,975, putting me just shy of 40 percent toward my goal. There were still 30 weeks of the year, meaning if I managed to continue contributing $100 a week, I’d get to $4,975 by the end of December.
Then in mid-September – when I’d contributed $3,475 to my retirement account – another contractor picked me up for a very large, long-term project. I felt confident enough to up my contributions to $200 a week. By Thanksgiving, I’d hit my goal: a fully funded Roth IRA.
What Did I Do With The Rest?
Since I hit my investment goal early, I had about six weeks left in 2012 and was unable to put any more toward my Roth IRA. What to do with that $1,200?
It was at that point that I realized I was definitely going to be looking at a tax bill, for the first time in my entire life. During my first two years of freelancing, my husband’s taxed income had offset my untaxed income; both years, we got a small tax refund. This year, though, I outearned even my generous expectations, and knew I’d owe Uncle Sam several hundred – if not a thousand – dollars or more.
So I did the responsible thing; I’ve continued socking away that $200 a week so I can have enough money for my inevitable tax bill.
Next year, I’m making an even bigger goal involving my retirement savings – I’m making it a priority to fully fund my Roth IRA and my husband’s 401(k)!
What’s been your biggest financial accomplishment of 2012? What are your biggest financial goals for 2013?
