RETIREMENT PLANNING
Making annual IRA contributions earlier in the year has the potential to speed up your savings through annual returns.
With a 15-month contribution window for IRAs each year, investing early may pay off for your retirement savings goals.
People often wait until the deadline to contribute to an individual retirement account (IRA)—around the April 15 tax filing deadline after the taxable year. But you could accelerate the savings process by contributing during the current tax year instead of at the deadline.
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If you start contributing the maximum $7,000 (in 2025) or $7,500 (in 2026), or if you’re over age 50, $8,000 in 2025 ($8,600 in 2026) to your plan at the start of the calendar year, that essentially allows you to start the investment process a year earlier! This could potentially add tens of thousands of dollars to your retirement account over your lifetime. (See: IRA contribution rules and limits)
Whether you invest the maximum amount allowed or a lesser amount, starting earlier in the calendar year may have a significant impact on your total savings over the long term. In the following illustrations, we show the impact that earlier contributions would have for an investor who contributes $7,500 a year.
As a hypothetical example, at an average annual return of 5%, after 10 years of $7,500 annual contributions made starting on January 1 of a tax year, your pre-tax value would have grown to $99,051—that’s $12,217 more than your account would be worth if you had started with contributions made at the April deadlines. And as the table below shows, after 40 years, the returns from the early investment would have added $52,800 to the total pre-tax IRA savings.
| Period | Total value of contributions started at beginning of period | Total value of contributions started one year later in the period | Difference |
|---|---|---|---|
| Period | Total value of contributions started at beginning of period | Total value of contributions started one year later in the period | Difference |
| 1 year | $7,875 | $0 | $7,875 |
| 10 years | $99,051 | $86,834 | $12,217 |
| 20 years | $260,394 | $240,495 | $19,900 |
| 30 years | $523,206 | $490,791 | $32,415 |
| 40 years | $951,298 | $898,498 | $52,800 |
This example is hypothetical and is not intended to represent the performance of any particular investment product, nor does it take into consideration product expenses, fees or taxes. Results would be lower if costs were included.
The difference would be even more significant for someone earning 10% per year. In fact, after 40 years, returns from the early investment would have added more than $600,000 to the total pre-tax IRA balance:
| Period | Total value of contributions started at beginning of period | Total value of contributions started one year later in the period | Difference |
|---|---|---|---|
| Period | Total value of contributions started at beginning of period | Total value of contributions started one year later in the period | Difference |
| 1 year | $8,250 | $0 | $8,250 |
| 10 years | $131,484 | $101,846 | $29,638 |
| 20 years | $472,519 | $383,693 | $88,826 |
| 30 years | $1,357,076 | $1,114,732 | $242,344 |
| 40 years | $3,651,389 | $3,010,858 | $640,530 |
This example is hypothetical and is not intended to represent the performance of any particular investment product, nor does it take into consideration product expenses, fees or taxes. Results would be lower if costs were included.
The good news is, you have options, and time is on your side for saving for your financial buckets. Opening an IRA can help you get started on your retirement savings plans for the future, and investing early in it each year may help give the value of your plan a boost.
The information provided is not intended as a source for tax, legal or accounting advice. Please consult with a legal and/or tax professional for specific information regarding your individual situation.
