Lump Sum or Dollar Cost Averaging your Roth/IRA

[mickeyd]

Many folks here are currently contributing to a Roth or traditional IRA, as am I. I have always contributed to my Roth, as well as DW's Roth, on a DCA monthly (1/12th $5000) basis. I realize that a lump sum in January is probably a better way to handle it, however if I make the contribution in Jan @ $5000 X2 and I need the cash in June for some reason then I have a bit of a liquidity problem. I can postpone June's (July, Aug etc) contribution and add it in later in the year to make up the $5000. My point is that I realize that I am probably forgoing an eventually larger total in the future for a bit more liquidity and sleep time today.

Does anyone else look at it this way, or am I the Lone Ranger on this one?

 

[LOL!]

Don't you have $CASH as part of your overall asset allocation? Say 5% or so sitting in a 5+% money market fund as an emergency fund. Is that not enough to overcome any liquidity problems?

 

[Patrick]

My point is that I realize that I am probably forgoing an eventually larger total in the future for a bit more liquidity and sleep time today.

Maybe not. You might be buying at lower values as the market fluctuates, which is the whole purpose of DCA. And, you might wind up with a larger total over time.

 

[samclem]

I don't think you should sweat it. DCAing in on a monthly basis is a fine, no hassle way to get this done, and you might even end up ahead. If it really bothers you not to plop the whole thing into the IRA in Jan, could you afford to double-up the DCA for one year? Put the regular amount into your IRA each month just as you are now, and also put the same amount every month into a money market account. At the end of the year you'll have made your annual contributions for the year past, and in Jan have enough to plop into the IRA for the following year. Remember to turn off the DCA into your IRA or you'll be contributing too much.

The real bonus comes if you find you are comfortable saving the extra funds every month. Just keep adding the new, higher amount to a tax-efficient non-IRA account and build up your savings faster.