Early Contributions Can Mean More in SavingsFebruary 3, 2020
- Give your IRA savings more time to benefit from potential investment growth.
- Early contributions can have a significant impact over the long term.
- Consider making your 2020 IRA contribution as soon as you are eligible.
Every year, you have a nearly 16-month period over which you can contribute to an IRA for that tax year. If possible, you may want to make contributions as soon as you are eligible to do so.
Making an early contribution—whether through a lump sum at the start of the tax year or by contributing evenly each month throughout the year—gives your savings more time to benefit from the power of compounding. Accelerating contributions by a few months may not seem like a big deal for one year, but it can have a significant impact over the long term. While investments are not guaranteed to grow every year, over time, you are likely to benefit from being invested longer.
There may be reasons why you can’t contribute to your IRA at the start of every year. Of course, funding an IRA later still is better than making no contribution at all.
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 Mike’s and Zoe’s early contributions puts their balances ahead of Alex’s.*
*Assumes a 7% annual rate of return compounded monthly, $6,000 contributed annually, 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.
This material has been prepared by T. Rowe Price for general and educational purposes only. This material does not provide fiduciary recommendations concerning investments, nor is it intended to serve as the primary basis for investment decision-making. T. Rowe Price, its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of
(i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material.
- Learn more about IRAs.