A well-dressed man sits at his computer while smiling.
Planning for retirement

IRA contributions: The earlier, the better

Learn the value of contributing to your IRA as early as possible.
5 minute read
  •  
November 09, 2022
Planning for retirement
Save for retirement
Article
Page
IRAs

If you're under age 50, you can contribute up to $6,000 across one or more IRAs for 2022. If you're age 50 or older, the limit is slightly higher ($7,000).*

You can make an IRA contribution for a given year anytime between January 1 and the tax-filing deadline of the following year (usually April 15). So you can make a 2022 IRA contribution between January 1, 2022, and April 18, 2023—but we don't recommend waiting. 

Learn how to invest in an IRA today

The point of investing

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

  1. 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).
  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 as long as you stay within the annual IRA contribution limits. Learn about IRA eligibility, contribution limits, and withdrawal rules.
  3. 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.  

Time is money

Using the 2022 contribution limit, let's say you invest $6,000 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 $354,053, which includes $174,053 in earnings.
  • Example B: You make a lump-sum investment every April and your end balance is $336,510, which includes $156,510 in earnings. That’s $17,543 less than you’d earn in Example A.

In each example, you're contributing a total of $180,000 to your IRA over the course of 30 years. The difference in earnings is due entirely to the timing of your contributions.

Do your best

The hypothetical examples above represent what-if scenarios that aren't 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. Take small steps toward saving 12%–15% of your gross income (including employer contributions) each year.

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 $180,000) 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!

Most Viewed

Ready to invest? See how to open an account
Start with this step-by-step guide to opening a personal investment account, such as a general investing brokerage account or an IRA.
Perspective in a time of heightened volatility
Market woes continue, but history has shown that saying the course is usually the best route to success.
Investing in a high-inflation world
Vanguard CEO Tim Buckley shares his views on investing in a high-inflation world.
How to choose a college savings account
Why volatility and downturns are part of investing
Chief Economist Joe Davis explains why market volatility and downturns happen and why they’re part of investing.
Fueling the FIRE movement: Updating the 4% rule for early retirees
With updates based on Vanguard’s principles of investing success, the 4% rule can help FIRE investors achieve success in retirement.

*You can never contribute more than you’ve earned for the year.

**These hypothetical examples don't represent the returns from any particular investments. The 4% return isn't guaranteed. All figures are in today’s dollars. Source: Vanguard.


All investing is subject to risk, including the possible loss of the money you invest.

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