IRA deadlines: Why contributing early matters

IRA contribution deadlines

You can make an IRA contribution for a given year anytime between January 1 and the tax-filing deadline of the following year. You can make a 2023 IRA contribution until April 15, 2024, which may allow for additional earnings. If you want to get a head start with your 2024 IRA contribution, you can make it as early as January 1, 2024. If you choose to wait to contribute, the deadline is April 15, 2025.

The point of investing

You invest to make money. The amount of money you make depends primarily on 3 factors:

1. When you invest. If you wait until the tax deadline to make an IRA contribution, you'll miss out on more than 15 months of compounding. If you have the financial flexibility to choose when you contribute to your IRA, do it as soon as possible. Learn how time is related to risk and reward.  

2. The amount you invest. You earn money through compounding—when your investment earnings generate their own earnings. If you contribute more, you have more money to generate earnings … which means you have more earnings to generate additional earnings. You can control the amount you invest if you stay within the annual IRA contribution limits. Learn about IRA eligibility, contribution limits, and withdrawal rules.

3. Asset allocation. Bonds, stocks, and short-term cash reserves are all asset types. When you invest, you can choose what percentage of your total portfolio you want to allocate to each asset type. Depending on where you are in your investing journey, you may choose a more aggressive allocation (e.g., a higher percentage in stocks) or a lower-risk allocation (e.g., a higher percentage in bonds).

How much can an IRA grow?

Using the 2024 contribution limit, let's say you invest $7,000 in your IRA every year for 30 years, and your average annual return is 4%.**

• Example A: You make a lump-sum investment every January and your end balance is $412,321, which includes $202,321 in earnings.
• Example B: You make a lump-sum investment every April and your end balance is $392,595, which includes $182,595 in earnings. That's $19,726 (in today's dollars) less than you'd earn in Example A.

In each example, you're contributing a total of $210,000 to your IRA over the course of 30 years. The difference in earnings is due entirely to the timing of your contributions.

Make contributions a priority

The hypothetical examples above represent what-if scenarios not always possible to replicate in real life. For instance, you may not be able to invest the same amount each year or you may have to skip some years altogether. That's okay. Once you've determined an IRA is the appropriate savings vehicle, take small steps toward saving 12%–15% of your gross income for retirement (including any employer plan and matched contributions) each year. It's important to note, nonworking spouses can make spousal contributions.

Maybe you don't have the financial flexibility to make a lump-sum investment in your IRA in January or April—or any other month, for that matter. That's okay too. Try setting up recurring automatic bank transfers. Making contributions twice a month over the course of 30 years (for a total contribution of $210,000) and earning a 4% average annual return would result in an end balance smaller than Example A but bigger than Example B. Not too shabby.

Want to get a better handle on your retirement goals? Use our retirement income calculator to review your progress so far and determine how much money you may need in the future.

If you're making an IRA contribution, no matter the amount and timing, you're on the right track. But if you happen to find yourself in the position to make your annual IRA contribution before the following year's tax-filing deadline, go for it!