Money for the Rest of Us

Ever notice how high Roth IRA mutual fund minimums are? (And Mutual funds in general.) At Vanguard, most Roth IRA minimums are $3000; which is 75% of the maximum yearly contribution ($4000). Because of financial uncertainty, I chose not to max out through automatic contributions last year. Thus, I still have about $2000 that I can contribute to reach the $4000 max for 2006. I have this money in savings and am planning on contributing up to the max. But, I would also like to open a new fund so I can keep my savings diversified (my current Roth is an international fund, and I would also like to have an index fund that is more US focused).

The problem is that because Vanguard sets their minimums to $3000, I can’t couldn’t open a new fund in 2006 because legally I could only contribute $2000 more to a Roth for that year. But, between now and tax filing I can contribute for both 2006 and 2007. I called Vanguard just to check and they told me that when I open a new fund it will ask me to specify which year I want my contributions attributed to. So, I can contribute $2000 from 2006 and $1000 from 2007 and I will have reached the $3000 minimum without running into any tax issues. Genius!