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Time To Make A 2012 IRA Contribution?

two hands holding a white egg with the letters IRA on it.April 15 is fast approaching.

That’s not only the tax filing deadline, it’s also the last day to make an IRA contribution for 2012.

Although I’ve retired from practicing law, receive Social Security benefits and distributions from my former firm’s defined benefit plan and participate in Medicare, Uncle Sam permits me, until I’m 70-1/2, to make an annual contribution to a traditional IRA.

In fact, my relatively modest 2012 “taxable compensation” (derived from writing activities) entitled me to make, but not deduct, the maximum catch-up contribution for those over 50 — $6,000.

The question was whether it was worth it.

One good thing about IRAs is you can have as many as you need.

But it’s also one of the bad things.

At year-end, I had IRA accounts at 13 institutions, invested almost exclusively in federally insured CDs. Rate-chasing and deposit insurance limits have caused this IRA proliferation.

I had to ask myself whether I wanted to set up yet another IRA at yet another institution merely to receive, in return, a paltry tax-deferred return on $6,000.

At three institutions, I have IRAs to which I could have made my contribution without establishing a new “plan” or account.

Unfortunately, one – at Vanguard – has a $10,000 minimum for purchasing new-issue brokered CDs – my investment of choice there. Six thousand dollars doesn’t cut it.

My Fidelity IRA is more helpful, permitting new CD purchases in $1,000 minimums.

But both these IRAs have this defect: Individual interest payments on brokered CDs – far less than $1,000 – aren’t reinvested in the same CD and end up in a “sweep” account, earning next to nothing (or nothing).

I also have an IRA savings account at Capital One 360 I could have dumped $6,000 into. But I don’t like its variable rate (currently 0.75% APY), and besides, I’m not looking to put more money into it since Capital One acquired ING Direct.

So, I seriously thought about passing up the government’s offer of tax-deferred income and putting my money to work elsewhere, like in property improvements.

But, as usual, I ended up making IRA contributions anyway.

After writing a check for $2,000 to Fidelity (which I invested, along with $3,000 sitting idle in my sweep account, in a CIT Bank 1.80% 7-year CD), I set up a new IRA at another institution – Pentagon Federal Credit Union – and opened a $4,000 3-year 1.60% APY CD there.

Even with interest rates where they are, I can’t look a gift horse in the mouth.

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