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Contribute to Your IRA Immediately

May 26, 2008

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deadline for an IRA contribution

It is not unusual for people to forget about contributing to their IRA until April of every year. In fact, it is probably the norm. The reason is simply because the deadline for our contribution to be eligible for last year’s IRA falls in April.

Let’s face it - everyone is lazy and we always procrastinate. Without an incentive or a “reason to act”, not many people have the discipline to contribute early. What we don’t realize when we wait is how much money we are potentially leaving on the table just because of our laziness. When we always wait till the last minute, we are:

  • not giving our money the maximum amount of time to grow
  • relying on the fact that we will for sure have time in April to manage our IRA contributions
  • not on top of our contributions, always playing catchup
  • running the risk that we might not have enough money to contribute to the maximum amount allowed each year

On the other hand, if we contribute early - either depositing all of the maximum allowed in May or at least start our contributions at that time, we are:

  • letting our money grow tax free for the longest time possible
  • making sure that we give it ample focus of our time by managing it early
  • staying on top of our finances
  • giving ourselves the best possible chance to contribute to the maximum because we are allotting money towards it early

Most of us know the power of compound interest and know that the earlier we start saving and investing, the more money we will have at the end. This is all due to the time we allow our money to grow. If we always contribute our maximum in January, we will in effect let our money grow 14 months more than contributing in April of the year after.

With that in mind, shouldn’t we start contributing to our IRA immediately?

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Dividend Growth Investor 05.27.08 at 6:56 am

Its good to diversify not only ones investments but also your potential tax situation. That’s why having both a 401K and a Roth IRA seems like a good tax planning strategy to me..

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