30 Reasons for IRAs: #8 Direct Deposits

Another from our 30 reasons for IRAs: Today's is great for those who like to set-it-and-forget-it and to pay themselves first.

Reason #8: You can set up direct deposits to many IRAs.

Many people have their pay deposited directly into a bank account. Most company HR departments and payroll services allow you to specify more than one account for your deposit. So consider taking advantage of this and setting up your direct deposit to contribute a portion of each pay check to your IRA. Or, if you bank online, many banks allow you to set up repeating transfers to an external account. Consider transferring an amount each month to your IRA. Check first with your IRA provider how to specify the year to which the contributions apply.

A major advantage of regular direct deposits to an IRA is that it allows you to automatically "dollar-cost average" your investments. Dollar-cost averaging is a strategy where you buy investment securities regularly in small amounts over time rather than attempt to time the market. Some research suggests that this strategy is good for individual investors who on average are not successful at timing the market, tending instead to buy near market tops and to sell in panics near market lows.

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