Updated for the 2024 tax year.
When it comes to building your dream retirement, not all investment accounts are created equal. Some, like Individual Retirement Accounts (IRAs), come with pretty sweet tax benefits. And with those sweet benefits come rules from the IRS.
For tax year 2023, you can contribute up to $6,500 ($7,500 if you’re over 50 years old) across any Roth or traditional IRAs you own. But the deadline isn’t until April 15, 2024 (April 9 for Ellevest clients), so you still have time to max out your contributions for 2023 if you haven’t yet. For 2024, the contribution limit is $7,000 ($8,000 for the over-50 crowd). You’ll have until April 15, 2025 for that one.
So with that list of dates and dollar amounts in hand — plus the age-old question, is now even a good time to invest? (TL;DR: yes) — you may be wondering when would be the best time to contribute to your IRA.
Option 1: Not yet
There are three main reasons why you might want to hold off contributing to an IRA just yet.
First, if you have high-interest rate debt. That interest can really hurt your bottom line, so make a plan to pay it off ASAP before you start investing. Second, if you don’t have an emergency fund in place. You need a safety net for right now before you start building up for later on.
And finally, if you have access to a 401(k) that hasn’t been maxed out yet — especially if you haven’t taken full advantage of your employer contribution match. The tax benefits of a 401(k) are particularly awesome, so unless your account comes with very high fees, we typically recommend maxing out your 401(k) before turning to an IRA.
You can contribute up to $22,500 ($30,000 if you’re over 50) into a 401(k) for the 2023 tax year, and up to $23,000 (or $30,500 for the over-50 crowd) for the 2024 tax year. (But check for any special rules in your employer’s plan, and make sure it lets you contribute directly, and not just through payroll deductions, which could prevent you from using 2024 dollars to contribute for tax year 2023.)
Option 2: ASAP
When it comes to investing, time is your friend. That’s why it’s almost always in your best interest to just invest ASAP. The markets have historically trended upward over the long term, plus you’ll have more time to ride out any potential market downturns that your investments happen to encounter. And don’t forget about the power of compound returns.
So if you have enough money right now to max out your IRA — or even just a good chunk of change you could put in — put in that big contribution as soon as you can. The research supports investing the whole amount at once, up front, to take max advantage of all the time you have.
Option 3: Throughout the year
Alas, not everyone can afford to max out an IRA in one fell swoop. A more accessible option is probably to contribute consistently, a bit out of every paycheck.
If that means you can contribute $7,000 / 12 = $583(ish) a month to max it out, that’s great, but any amount invested at regular intervals will do. We recommend automating your contributions.
Not only does consistent, automated investing help you turn it into a long-term habit, but it also means you’re following a technique called “dollar-cost averaging” — by investing the same dollar amount every time, you end up with more shares of stock when the market’s down and fewer shares of stock when the market’s up, and it all averages out. That takes the whole “trying to time the market” thing out of the picture (which is good because it doesn’t work).
Option 4: Any amount, any time before the deadline
At the end of the day, when you invest isn’t nearly as important as just doing it. Plus, you’ll be kick-starting that investing habit, which is step one. Future You will thank you for it.
Disclosures
© 2024 Ellevest, Inc. All Rights Reserved.
All opinions and views expressed by Ellevest are current as of the date of this writing, are for informational purposes only, and do not constitute or imply an endorsem*nt of any third party’s products or services.
Information was obtained from third-party sources, which we believe to be reliable but are not guaranteed for accuracy or completeness.
The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities, and should not be considered specific legal, investment, or tax advice.
The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person.
Investing entails risk, including the possible loss of principal, and past performance is not predictive of future results.
Ellevest, Inc. is an SEC-registered investment adviser. Ellevest fees and additional information can be found at www.ellevest.com.
FAQs
By: Shelly Gigante. Shelly Gigante specializes in personal finance issues. Her work has appeared in a variety of publications and news websites. Highlight how much more your savings could grow if you fund your IRA in January of each tax year, rather than waiting to make a prior year contribution.
What is the best way to contribute to an IRA? ›
Pay your IRA first
Set up your accounts so that they direct money to your IRA with every paycheck, just like a 401(k) plan does. If you receive a paycheck every two weeks, consider allowing the brokerage to dip into your bank account and transfer your contribution on payday.
Is now a good time to put money in my IRA? ›
The three times that are generally recommended are when you're young and at the beginning of your career, when your income dips, and before income tax rates increase. Using annual allowances as early as possible gives your money more time to grow in value.
Is it smart to contribute to IRA right now? ›
So if you have enough money right now to max out your IRA — or even just a good chunk of change you could put in — put in that big contribution as soon as you can. The research supports investing the whole amount at once, up front, to take max advantage of all the time you have.
Is it better to pay taxes on IRA now or later? ›
If you expect to be in a lower tax bracket during retirement, a traditional IRA might make the most financial sense. You'll reap tax benefits today while you're in the higher bracket and pay taxes later at a lower rate.
How much should you put in your IRA monthly? ›
Maxing out your IRA contributions is generally considered a good approach. So, assuming you are eligible to make the maximum contribution to your IRA, you can contribute $500/mo. if you're 49 years old or younger, or $583/mo. if you're 50 or older.
When should I not contribute to IRA? ›
For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs. For 2019, if you're 70 ½ or older, you can't make a regular contribution to a traditional IRA.
Can I contribute 100% of my salary to an IRA? ›
Annual IRA Contribution Limit
Eligible individuals age 50 or older, within a particular tax year, can make an additional catch-up contribution of $1,000. The total contribution to all of your Traditional and Roth IRAs cannot be more than the annual maximum for your age or 100% of earned income, whichever is less.
How to make your IRA grow? ›
The two primary ways an IRA can grow is through annual contributions and investment appreciation. However, there are limits to the annual contribution amounts allowed, and not all investments are successful in the long term.
Is $100 a month good for an IRA? ›
If you're focused on long-term growth, investing $100 each month could be a good move for you. Many people invest through an IRA account. Check out our list of the best IRA accounts to learn more about how these investment accounts function.
Key Takeaways
You're never too old to fund a Roth IRA. Opening a later-in-life Roth IRA means you don't have to worry about the early withdrawal penalty on earnings if you're 59½.
How often should I contribute to my IRA? ›
For many people, contributing the annual maximum to their IRA all at once is difficult. If you can afford it, you can set up automatic payments that move money from your bank account to your brokerage account regularly, such as every two weeks or once a month. Setting up periodic contributions has another benefit, too.
Do I get a tax credit for contributing to an IRA? ›
You may be able to take a tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan. Also, you may be eligible for a credit for contributions to your Achieving a Better Life Experience (ABLE) account, if you're the designated beneficiary.
How much will an IRA contribution lower my taxes? ›
Reduce Your 2023 Tax Bill
For example, a worker who pays a 24% tax rate and contributes $6,500 to an IRA will pay $1,560 less in federal income tax. Taxes won't be due on that money until it is withdrawn from the account. The last day to contribute to an IRA for 2023 is the tax filing deadline in April 2024.
Is it better to invest in IRA monthly or annually? ›
Since you derive the most benefit from tax-free growth by allowing your funds to earn interest over time, contributing $500 monthly to your Roth IRA instead of once a year means you can earn an estimated $40,000 extra over your lifetime.
Should I max out my IRA in January? ›
Of course, not everyone can afford to fully fund their IRA with a single contribution in January, but making contributions as soon as you're able should help boost your savings over time. You might also consider making consistent contributions over time, which is a technique known as dollar-cost averaging.
Is it better to contribute to a Roth IRA monthly or in lump sum? ›
In 91% of the 10-year periods analyzed, investing a lump sum at the beginning of the year outperformed the monthly systematic investment approach. “Because markets generally tend to rise over the long-term, investing as soon as you can usually works best,” Mr.
What time of year to invest in Roth IRA? ›
Funding the Roth IRA in January provides the most long-term advantage. By contributing early, investments have more time to grow tax-free. Just as in medicine, early intervention often yields better outcomes; in investing, the earlier you invest, the longer your money has to grow.
