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The benefits of maxing out your IRA: Why contributing early matters

How maxing out your individual retirement account contributions early in the year can enhance your retirement savings.

September 2025, Make Your Plan

Key Insights
  • For 2025, individuals under age 50 can contribute $7,000 annually to an individual retirement account (IRA), while those 50 and older can contribute $8,000, which includes a $1,000 catch‑up. Maxing out these contributions provides more time to benefit from tax‑deferred, compound growth.
  • Contributing at the beginning of the tax year allows investments additional time to grow, potentially resulting in thousands of extra dollars over the long term.
  • Regularly maxing out IRA contributions can play an important role in a retirement savings strategy, offering greater financial security.

An individual retirement account (IRA) is one of the most effective tools for building long‑term wealth and securing a comfortable retirement. While many investors contribute to IRAs, they may not take full advantage of the opportunity to max out their contributions each year. Doing so can significantly enhance your financial future, especially if you contribute at the beginning of the year. Here’s why maxing out your IRA is a smart financial move and how starting early can boost your retirement savings.

Understanding IRA contribution limits

For 2025, the IRA contribution limits are:

  • $7,000 per year for individuals under age 50.
  • $8,000 per year for individuals 50 and older (this includes a $1,000 catch‑up contribution).

These limits apply to both Traditional IRAs and Roth IRAs, though eligibility for a Roth IRA is based on income (see income limits for Roth IRA contributions). By maximizing your contributions, you ensure that you’re getting the full benefit of these tax‑advantaged retirement savings opportunities.

(Fig. 1a) 2025 income limits for Roth IRA contributions1

Filing status Eligibility
Single or Head of Household Phased out: $150,000–$165,0002 ($146,000–$161,000 for 2024)
Married Filing Jointly or Qualifying Widow(er)3 Phased out: $236,000–$246,0002 ($230,000–$240,000 for 2024)

 

1 There are no income limits for converting Traditional IRA assets to a Roth IRA.
2 This amount refers to the taxpayer’s modified adjusted gross income (MAGI), which does not include amounts that were converted.
3 For married taxpayers filing separately: If you did not live with your spouse at any time during the tax year, see the “single” filing status. Otherwise, your eligibility is phased out between a MAGI of $0 and $10,000.

 

(Fig. 1b) 2025 income limits (MAGI) for Traditional IRA deductibility1

Filing status   Eligibility
Single or Head of Household Not eligible to participate in an employer retirement plan Full
Eligible to participate in an employer retirement plan Phased out: $79,000–$89,000
($77,000–$87,000 for 2024)
Married Filing Jointly2 Neither you nor your spouse is eligible to participate in an employer retirement plan Full
You are not eligible to participate in an employer retirement plan, but your spouse is eligible Phased out: $236,000–$246,000
($230,000–$240,000 for 2024)
You are eligible to participate in an employer retirement plan  Phased out: $126,000–$146,000
($123,000–$143,000 for 2024)

 

1 Workers with high income levels are not precluded from contributing to a Traditional IRA—the limits only apply to determining whether that contribution is deductible.
2 Consult IRS rules or a tax professional if your status is married filing separately or qualifying widow(er).

Why maxing out your IRA is a smart move

Tax advantages

  • Traditional IRA: Contributions may be tax‑deductible, reducing your taxable income now, and your money grows tax‑deferred until withdrawal.
  • Roth IRA: Contributions are made with after‑tax dollars, but your investments grow tax‑free, and withdrawals in retirement are also tax‑free.

How regular contributions can compound into a substantial portfolio

(Fig. 2) A $7,000 contribution each year can potentially grow over time thanks to tax‑deferred compounding.
This graphic is for illustrative purposes only and does not represent the performance of any specific investment. This example assumes a hypothetical 7% annual rate of return in a tax‑deferred account. All values used in this illustration are approximations using rounded figures and are not exact. All investing is subject to risk, including possible loss of principal.
For office use only: 202509-4835124

Compounding growth over time

  • The earlier you invest, the more time your contributions have to grow through the power of compounding (see How regular contributions can compound into a substantial portfolio). Even small differences in contribution timing can lead to significantly higher balances over decades.

Increased retirement security

  • By consistently maxing out your IRA, you can build a larger nest egg, which can help reduce the risk of outliving your savings in retirement.

Diversification of retirement savings

  • IRAs can supplement other retirement savings plans because of their flexibility in choosing investments and accessibility.

The power of early IRA contributions

Why timing matters
Contributing to your IRA early in the year gives your money more time to grow through compounding.

Start early. Stay consistent.

  • Maximize your annual IRA contribution as early as possible.
  • Set up automated monthly contributions if a lump sum isn’t feasible.
  • Even small, early contributions add up.

Pro tip
If you contribute on January 1 instead of waiting until Tax Day the following year, that’s almost 16 extra months of growth—every year! Remember: It’s not timing the market—it’s time in the market that matters.

Compare these three investors

(Fig. 3) They each start saving for the same tax year, and over the next 10, 20, or 30 years, they contribute the same amount every year. The power of compounding from Ethan’s and Tia’s early contributions puts their balances ahead of Dana’s.

Assumes a 7% annual rate of return compounded monthly, $7,000 total contributed each year, and contributions made for 10, 20, or 30 consecutive tax years. Account balances are as of the tax filing deadline month and reflect the same number of annual contributions for each investor. This example is for illustrative purposes only and not meant to represent the performance of any specific investment option. All investments involve risk, including possible loss of principal.
For office use only: 202509-4835124

The added benefits of contributing early

Contributing at the beginning of the year can enhance your retirement savings. Here’s why:

More time for compound growth

  • You have until April 15, 2026, to make your tax year 2025 IRA contribution. However, making your contribution at the start of each year can give your money additional months to grow.
  • For example, a contribution made in January has almost 16 months longer to grow compared with one made at the April 15 deadline. Over time, this small change can result in thousands of extra dollars in retirement (see The power of early IRA contributions).

Avoiding last‑minute stress

  • Waiting until the tax deadline to contribute can lead to missed opportunities or rushed financial decisions. Contributing early ensures you stay ahead of deadlines and financial goals.

Dollar cost averaging benefits

  • If investing a lump sum at the beginning of the year isn’t feasible, don’t worry. Setting up automatic recurring investments throughout the year can help allow you to take advantage of dollar cost averaging, which could reduce the impact of market volatility by spreading out investments over time.

Final thoughts: Make the most of your IRA

Maxing out your IRA each year—and doing so early—offers multiple financial benefits, from tax savings to maximizing compound growth. If you haven’t yet contributed for the year, consider making your IRA a priority to help put you on the road to a more comfortable retirement.

Start investing early and maximize your contributions today—your future self will thank you!

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Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of September 2025 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy. Actual future outcomes may differ materially from any estimates or forward-looking statements provided.

Past performance is not a guarantee or a reliable indicator of future results. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

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