CD Maturity

I just had a 5-year CD mature. Often I'm pretty lazy about doing anything when this happens-- if you don't act, the bank just automatically rolls it over for the same term at whatever the current rate is. But given how things have been going lately, and how low interest rates are, I wanted to make sure I took a more careful look this time before the grace period for making changes expires.

And what a depressing look it was! The current CD rates at Chase suck, to be quite frank. For anything under 18 months, I'd only earn 0.25%. 18 months to 59 months is 1.0%. 60 to 120 months is 1.49%. I don't want to tie up money for too long at those rates.

I may just roll over the CD for 18 months, but I'll also be shopping around for better CD rates at other banks. The CD is a Roth IRA, but hopefully it won't be too complicated to roll it over into cash and then redeposit it-- I plan to call Chase today to find out! I tried to call the other day, actually, but perhaps because of the snow, their phone lines seemed to be tied up and I got sick of holding!

Poll: How Many Mutual Funds Do You Have?

The thing that surprised me about the comments on my investment portfolios was that a couple of commenters thought I had too many different mutual funds. This had just never occurred to me-- I always figured it was good to diversify. It's not like I've deliberately aimed to have the largest possible number of funds, but each time I make a Roth IRA contribution, I tend to just buy a new fund rather than investing in more shares of a fund I'm already holding.
Other commenters were of the opinion that it doesn't matter how many funds you have as long as you can keep track of them, and as long as your portfolio has a good allocation mix for your level of risk tolerance. Keeping track of my funds is fairly easy-- E*Trade and Fidelity have good screens where you can see at a glance how you're doing. But what does bug me, right now, is having to enter all my investment transactions into Quicken manually, since Fidelity no longer supports downloads for the version of Quicken I'm using. So, every month, I slog through entering about a dozen buy and reinvest dividend transactions to keep my records up to date.

But let's hear from everyone else on how they allocate their investments:

How many mutual funds do you currently invest in?
	None.
	1-5
	6-10
	10-20
	More than 20
Free polls from Pollhost.com

Meanwhile, looks like I will be getting a detailed look at my portfolio from my friendly neighborhood economist (if Australia counts as neighboring, when you're in blog-land). My pal Moom has written a guest post for me in the past, and now he's going to tell the world what he thinks of my investing strategy!

What if You Contribute Too Much to a Roth IRA?

I've had a couple of comments from people saying I should be careful not to contribute too much to a Roth IRA. For 2007, I contributed the full $4,000, but that maximum only applies to people whose income was below $99,000. My total income in 2007 was just above $100,000-- so did I screw up?
Fortunately, the answer is NO! The income limit for Roth IRA contributions refers not to your gross income, but to your "Modified Adjusted Gross Income," abbreviated hereafter as MAGI. Maybe I should have called this post "The Gift of the MAGI..."

As I learned from the "Ask Encore" column in this past weekend's Wall Street Journal, you can figure out your MAGI by going to www.irs.gov and using a worksheet in Publication 590. They say it's on page 61, but I didn't see any page numbers-- I just found it by searching the table of contents for Roth IRA contribution limits.
The worksheet asks you to enter your adjusted gross income from line 38 on form 1040. Then you have to add back in a bunch of other lines, none of which applied to me. Below is the 2007 worksheet:

1.	Enter your adjusted gross income from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 36			1.
2.	Enter any income resulting from the conversion of an IRA (other than a Roth IRA) to a Roth IRA or a minimum required distribution from an IRA (if figuring MAGI for conversion purposes)			2.
3.	Subtract line 2 from line 1			3.
4.	Enter any traditional IRA deduction from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 31			4.
5.	Enter any student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 32			5.
6.	Enter any tuition and fees deduction from Form 1040, line 34, or Form 1040A, line 19			6.
7.	Enter any domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 33			7.
8.	Enter any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18			8.
9.	Enter any foreign housing deduction from Form 2555, line 50			9.
10.	Enter any excludable qualified savings bond interest from Form 8815, line 14			10.
11.	Enter any excluded employer-provided adoption benefits from Form 8839, line 30			11.
12.	Add the amounts on lines 3 through 11			12.
13.	Enter: $166,000 if married filing jointly or qualifying widow(er), $10,000 if married filing separately and you lived with your spouse at any time during the year, or $114,000 for all others			13.
	Is the amount on line 12 more than the amount on line 13? If yes, see the note below. If no, the amount on line 12 is your modified adjusted gross income for Roth IRA purposes.

My MAGI was only $86,606, which is basically wages, interest, business income, and capital gains. The reason it's lower than my gross income is those lovely pre-tax deductions: my 401k, maxed out at at $15,500, plus little things like my monthly Metrocards, and health insurance.

For 2008, the MAGI limit for contributing the maximum $5,000 to a Roth IRA is $101,000 for individuals. (Yeah, it's different for you over-50 people and married-filing-jointly types, see the IRS link for details while the young swinging singles read on!) I plan to continue to max out my 401k contributions so hopefully it will still be a couple of years before I have to start limiting my Roth IRA amounts. But I will be using that worksheet each year from now on, just in case.

Fortunately, having a too-high income doesn't necessarily disqualify you from participating in a Roth IRA-- the contribution limit is lessened and eventually phased out as your income gets higher, it's not all or nothing. The IRS provides a worksheet with which you can calculate your correct maximum amount.

Here's an example of the 2007 worksheet for someone whose MAGI is over the limit, showing how to calculate the reduced contribution amount:

1.	Enter your modified AGI for Roth IRA purposes	1.	100,000
2.	Enter: $156,000 if filing a joint return or qualifying widow(er), $-0- if married filing a separate return and you lived with your spouse at any time in 2007, or $99,000 for all others	2.	99,000
3.	Subtract line 2 from line 1	3.	1,000
4.	Enter: $10,000 if filing a joint return or qualifying widow(er) or married filing a separate return and you lived with your spouse at any time during the year, or $15,000 for all others	4.	15,000
5.	Divide line 3 by line 4 and enter the result as a decimal (rounded to at least three places). If the result is 1.000 or more, enter 1.000	5.	.067
6.	Enter the lesser of: $4,000 ($5,000 if you are age 50 or older, or $7,000 for certain employer bankruptcies), or Your taxable compensation	6.	4,000
7.	Multiply line 5 by line 6	7.	268
8.	Subtract line 7 from line 6. Round the result up to the nearest $10. If the result is less than $200, enter $200	8.	3,740
9.	Enter contributions for the year to other IRAs	9.	0
10.	Subtract line 9 from line 6	10.	4,000
11.	Enter the lesser of line 8 or line 10. This is your reduced Roth IRA contribution limit	11.	3,740

So what happens if you accidentally contribute more than you are allowed for your income level? You have to pay the IRS a 6% excise tax on the excess contribution amount. If you leave the money in the Roth IRA account anyway, it will reduce the amount, if any, which you are eligible to contribute the next year. If you aren't eligible to contribute anything the next year, then you'll keep getting dinged that 6% penalty each year the over-contribution remains in your account. Ouch!

Remember, all this tax stuff is serious business, and I am not a professional-- make sure you check the IRS website to do your own research for your own situation, and stay up to date on any changes in the laws!