Should I borrow to fund my 2004 Roth IRA

What am I to do when I feel "I must! I must! I must increase my Roth!" (my apologies to Judy Blume) but I don't have the cash to do it before April 15th? I consider the importance of making the contribution and I carefully weigh my options...

The Problem...A dinky Roth at my age!
About seven years ago, when they first came available, I opened a Roth IRA in the form of a $2000 CD with my bank. In Jan 2003 I moved it to a mutual fund, but I have not contributed to it since it's inception. Instead, I have focused solely on maximizing my 401(k) contributions each year. I reasoned I didn't have the "extra" money to put in a Roth, I wanted to minimize my taxes TODAY, and besides...my tax burden would be much lower in retirement.

I now know prioritizing minimizing my tax burden now may not be the best option for long-term and that it's best to "tax diversify" a retirement portfolio (using tax-deferred, tax-free and taxable accounts). It has become clear how important a Roth IRA is to meeting my retirement goals. I am 37 now, with a Roth IRA worth approximately $3000 - only 5% of my retirement portfolio - ACK!

I've wasted some valuable compounding time so I am feeling the pressure. I must make a 2004 contribution before April 15th. Using a conservative 8% avg return and a fantasy retirement date of 50, I calculated the following:

If I do not make a 2004 contribution, I start with my current $3000 balance and contribute $4000 annually until 2008. I contribute $5000 annually from 2008 forward for a total Roth balance of $116,664.00 in 2018.

If I make a 2004 contribution of $3000, I start with $6000 and making the same assumptions my Roth balance would be $124,823.00 in 2018.

That's not huge, due to the limited time involved, but that's over $5000 extra that I'd rather have! If I then leave that money untouched until I am 60 and can withdraw it without penalty, again assuming an 8% return, that difference nearly triples to over $14,500!

Aye, but the rub is that I have no cash savings with which to contribute...argh! I have paid off all my credit card debt as of last week and I am determined to begin saving 30% of my takehome pay beginning next month, but I only have $50.03 in my shiny new ING savings account.

The Solution...Borrow?
It being near tax time, the invitations to borrow are pouring in. At my new savings rate, I could have the $3000 by mid-May without a problem...but not by April 15th. Since I would only need to borrow for a short time I decided to look at my options:

1. Checks for our home equity line (HELOC) that have an APR of 5.875% (daily periodic finance charge of 0.0161%) and the interest is tax deductible. There is no transaction fee and I could start this loan as late as 4/14. If I pay it off by 5/15 it will cost me about $15 to borrow this way (roughly $11 considering the tax implications of a 25% marginal rate, right?). It is a variable rate, but for such a short term, I'm sticking with this calculation.


2. "Checks" from a credit card at a promotional APR of 1.99% (daily finance charge of 0.0052%). This is a fixed rate until July 31 and also appears to have no transaction fee. The offer expires at the end of the month, so I would have to start the loan on 3/31. If I pay this off by 5/15, it will cost me a little more than $7...less than half what the HELOC option costs. They will also credit me $1 for every $1000 "transferred" online instead of via the paper checks. If I can qualify for that credit (can I "transfer" to myself? My bank? Or only to another credit card account?) I break even on about day 18 and the loan will cost less than $5.

Conclusion...Good debt?
For under $8 I can make a serious investment in my future. I will also investigate whether I can use a .99% rate that I often get invitations to use (Oh Sony Card...come to my rescue!) and drop my cost to below $4. I might even be able to map out a plan using my ING account that would lessen or eradicate that cost altogether.

In addition to the small financial cost, I will also have to endure the disappointment of postponing credit card debt eradication for another 60+ days (Khaaaaaaan!), but the theoretical math doesn't lie (theoretically) so this seems like a wise choice nonetheless.

I got the OK from my better half and thumbs up from Pepper, so I'm going for it.