One of the biggest benefits of saving and investing in a 401k is that it’s automatic – your employer just takes care of everything for you. Don’t you wish that investing in a Roth IRA could be that simple? Well, you can setup an automatic Roth IRA and make it easier to save for retirement – you just need to follow these simple steps.
The other day we talked about when to open a Roth IRA (which is right now if you haven’t already), and today we’ll show you how to set it up to automatically contribute the max amount per year directly out of your paycheck!
Option 1: Setting Up Automatic Paycheck Contributions
The first option, which is my personal favorite, is to setup automatic paycheck contributions to your Roth IRA. Almost every employer offers direct deposit, and when you set it up, you’re asked for your Bank Account Routing Number and Account Number. Then, each week your paycheck is deposited into your checking account.
What a lot of people don’t realize is that you can setup multiple accounts to deposit money into. Some people already use this tactic to automatically save a certain amount of their paycheck each month – they simply have 10% automatically deposited into their savings account.
Well, you can do the same thing with a brokerage account or Roth IRA. The trick is to figure out your broker’s Routing Number, and then your Account Number. On most websites, you can find this information by searching, but you can also find out by calling customer service. Once you have the routing number for your Roth IRA, you can setup automatic paycheck contributions each pay check.
Related: Best Roth IRA Accounts
Option 2: Setting Up Automatic Withdrawals
If your employer doesn’t offer direct deposit, or in the rare case you can’t setup multiple accounts, you can always do the process backward.
Sharebuilder founded itself on having automatic investments, and you could set it up to automatically withdrawal a certain amount each week or month to invest. Now, almost every brokerage does this, and you can set this up for your Roth IRA.
Simply go to your Roth IRA, go to transfers, and setup a bi-weekly or monthly transfer to take place after you get paid. Then, the money will automatically be transferred into your Roth IRA each pay period.
The important thing to remember about this approach is that it isn’t based on your paycheck. So, if you are hourly and don’t work as much, or take an unpaid vacation, the automatic withdrawal will still process and it could impact your checking account balance. You really have to be more careful with this approach.
Automatic Roth IRA Contribution Amounts Per Pay Period
The goal of this, of course, is to automatically invest the maximum possible to your Roth IRA. This does require a little bit of math on your part to make sure you get it right, because you don’t want to deal with the hassle of over-contributing.
So, here is what you should contribute for the 2023 tax year based on the IRA Contribution Limits (but make sure you check with all of the rules we talked about last week to make sure you’re eligible):
Age 49 and Under – $6,500 Contribution
- Weekly Paycheck Contributions: $125
- Bi-Weekly Paycheck Contributions: $250
- Monthly Paycheck Contributions: $541.66
Age 50 and Older – $7,500 Contribution
- Weekly Paycheck Contributions: $144.23
- Bi-Weekly Paycheck Contributions: $288.46
- Monthly Paycheck Contributions: $625
Do you automatically contribute to your Roth IRA or other brokerage account?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared toward anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications, including the New York Times, Wall Street Journal, Washington Post, ABC, NBC, Today, and more. He is also a regular contributor to Forbes.
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