IRA Contribution: The earlier, the better

You can make an IRA contribution for a given year between January 1 and the next year’s tax filing deadline (usually April 15). The deadline for IRS 2020 tax filing and IRA contributions has been extended to Monday, May 1, 2021. You can contribute to the 2020 IRA between January 1, 2020 and May 1, 2021 – but we do not recommend waiting. The reason is here.

Investment point

You invest to make money. The amount of money you make depends on 3 things – 2 of which you can control.

  1. Investment performance. You cannot control investment performance; That is why all investments involve risk. The main cause of risk? Market movements, which affect your investment earnings (i.e. your total income).
  2. The amount you invest. You make money through compounding – when your investment earnings make their own earnings. The more you contribute, the more money you have to earn … which means you have more money Extra Earnings You can control the amount of investment as long as you are within the limits of the annual IRA contribution.
  3. When you invest. If you wait until the deadline to contribute to the IRA, you have missed the 16-month compound. If you have the financial flexibility to contribute to your IRA, do it as soon as possible. Learn how time relates to risk and reward.

Time is money

Suppose you invest 5,500 in your IRA every year for 30 years and your average annual income is 4%. **

  • Example A: You make a single investment every January and your last balance is $ 323,967, Which contains 158,967 In earnings.
  • Example B: You invest a bunch every April and your last balance is $ 308,467, Which contains $ 143,467 In earnings. That $ 15,500 less Example A is about how much you earn.

In each instance, you are contributing a total of $ 165,000 to your IRA over 30 years. The difference in income is entirely due to the period of your contribution.

Try your best

What the above hypothetical examples represent যদি if not a scene that is not always possible to replicate in real life. For example, you may not be able to invest the same amount each year or skip a few years altogether. All right. Take small steps toward saving 12% -15% of your total income each year (including employer contributions).

You do not have the financial flexibility to invest a single amount in your IRA in January or April (or indeed any other month). That’s fine too. Try setting up recurring automatic bank transfers. With a bi-weekly contribution over 30 years (for a total contribution of 5 165,000) and an average annual income of 4%, the final balance is smaller than Example A but not larger than Example B.

Want to get a better handle on your leisure goals? See our Retirement Income Calculator. You can review your progress so far and determine what you may need in the future.

If you contribute to the IRA – whatever the amount and time – you are on the right track. All we’re saying is that if you find yourself contributing to your annual IRA, follow the deadline for next year’s tax-file.

* You cannot contribute more than what you have earned for the year.

** This hypothetical example is provided for illustration purposes only. It does not present a return on any particular investment and the rate is not guaranteed. All figures are in dollars today. The tax is paid on January 1 of the year and April 1 of the following year. The figure assumes that each investor contributes $ 5,500 (total $ 165,000) for 30 years and earns 4% a year after inflation. Source: Vanguard.


All investments are at risk, including the potential loss of money you invest.

We recommend that you consult a tax or financial advisor about your personal situation.

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