I was talking to a friend of mine recently whose personal finance habits I admire. We’re both in the fortunate position of making too much to qualify for the deduction for IRA contributions. I couldn’t believe it when he told me he doesn’t contribute to an IRA – just his company’s 401k plan. I still contribute to my rollover IRA, and here’s why.

I have held six jobs so far in my professional career and each offered a 401k plan. Each time I switched jobs I rolled my 401k into a rollover IRA account (currently in a target fund at T Rowe Price, balance is approximately $315,000). Even though I currently contribute the maximum to my current employer’s 401k plan (at Vanguard), I still put the $5500 maximum annually into my rollover. And my wife does too. If I let that $315,000 sit for the next, say, ten years, at a conservative five percent return, my balance would be around $520,000. Not bad, but by adding the extra monthly contribution, I end up with nearly $600,000. And, over twenty years, the difference grows from $850,000 to $1,060,000. Not bad for $458 per month, or only $15 per day.

I’ve thought about this issue quite a bit and although the accounting might be hairy come retirement time (the rollover will have a mix of pre-tax 401k dollars and after-tax rollover IRA dollars), I don’t see any reason not to continue putting the maximum amount in per month. (T Rowe Price offers an automatic contribution function which allows you to select the months you want to contribute and makes sure your contribution hits the max. I contribute monthly, so $458.)

Do you contribute the $5500 maximum to your IRA? If not, why?