Your Late IRA Contributions Have a Procrastination Penalty
There’s a 15-month window to make your IRA contribution for any given tax year. The earlier you make it, the more you benefit from the compounding effect.


If you had a choice between getting $100 or $80, which would you choose? The answer seems self-evident, but many investors are, in essence, opting for the lower figure when they procrastinate in making contributions to their IRA or other investment accounts.
There is a span of 15½ months in which you can make your annual contribution to an IRA, from January 1 of the applicable tax year through April 15 (the tax return deadline) the following year. While more investors are taking advantage of early contributions, Vanguard research found that many more are still holding their contributions until right before the deadline.
Throughout my career as a financial adviser, I’ve come across both early-bird contributors and “night owls” who wait until the last minute. The math usually points to better outcomes for the early birds, and here’s why.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The penalty of procrastination
Imagine two investors, one contributing $7,000 to her IRA in January of every year, the second investor making his annual contribution 15 months later. Over 30 years, both would have contributed a total of $210,000, but the first investor would have a final balance that’s almost $42,000 higher, assuming 6% annual returns. For the second investor, that difference is a “procrastination penalty” that’s about 20% of his total contributions.
Of course, this is a hypothetical scenario only that does not represent any particular investment and the rate of return is not guaranteed; final results will vary considerably depending on market returns and your portfolio construction. But it illustrates that there is a heavy cost in delaying your contributions.
Making early and regular contributions easier
I rarely have to remind my older clients to make early contributions. Over the years, they’ve witnessed the power of compounding and the benefit of investing early and regularly. But they often relay that their adult children won’t follow the same practice, citing their busy daily lives, budgeting concerns or just plain forgetfulness.
For them — and for you if you face the same challenges — here are a few suggestions:
Automate your investment life. You can usually set up automatic investments on a weekly, monthly, quarterly or annual basis. Doing so removes all the hassles of remembering to make contributions. It has the added benefit of dollar-cost averaging — a fancy way of saying that, instead of investing in one lump sum, you invest a smaller fixed amount at regular intervals at different share prices. Dollar-cost averaging does not guarantee that your investments will make a profit, nor does it protect you against losses when stock or bond prices are falling, but it can help reduce, if not necessarily eliminate, the risk of loss through bad market timing.
Contribute a safe estimate now, the balance later. The previous suggestion may not be feasible for those with an unpredictable earned income stream, such as part-timers or freelancers. Instead, they may want to contribute a conservative amount now and then contribute the balance later once they have a firm idea of their reported income. However, I encourage consulting with a financial adviser to get a firm idea that their reported income will meet or exceed the amount of their contribution.
Don’t delay any investment transfers. Some may opt to contribute to a money market fund now within an IRA to make the deadline, then later transfer the money into asset classes that are more appropriate for their long-term financial goals. But don’t procrastinate on that transfer. While money market funds are providing more attractive returns recently, they are still no substitute for the higher returns that equities and bonds have provided historically over the long run.
Maximizing investments across the board
If you have more disposable income for savings, the following are also worth considering:
Frontloading your investments. While dollar-cost averaging lowers risks, Vanguard research indicates that, in most cases, investing in a lump sum early usually generates higher returns because of the extra time for compounding to take effect. If you’re contributing to your IRA for the 2023 tax year now, consider making contributions for 2024 at the same time. If you have an employer-sponsored retirement plan like a 401(k), you might consider increasing your payroll contributions, so you reach your maximum in the first few months rather than over the full year.
Don’t forget your other family members. Remember that you can contribute to your spouse’s IRA even if they don’t have earned income. If you have children who have earned income, also consider opening a Roth IRA for them. Limitations do apply.
Of course, all investing is subject to risk, including possible loss of the money you invest. But, as our examples illustrate, it usually pays to be the early bird. Invest early and regularly to avoid the procrastination penalty. And don’t forget, these principles can be applied to all aspects of investing for long-term success.
Related Content
- Types of Income the IRS Doesn't Tax
- Want to Reduce Investment Taxes? Consider These Five Ways
- Tax Season Is Here: Big IRS Tax Changes to Know Before You File
- How Retirement Income Is Taxed by the IRS
- Are You Overlooking Your Most Valuable Retirement Asset?
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Julie Virta, CFP®, CFA, CTFA is a senior financial adviser with Vanguard Personal Advisor Services. She specializes in creating customized investment and financial planning solutions for her clients and is particularly well-versed on comprehensive wealth management and legacy planning for multi-generational families. A Boston College graduate, Virta has over 25 years of industry experience and is a member of the CFA Society of Philadelphia and Boston College Alumni Association.
-
Stock Market Today: Stocks Step Back From New Highs
Investors, traders and speculators continue the low-volume summer grind against now-familiar uncertainties.
-
Ask the Editor — Tax Questions on the New Senior Deduction
Ask the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on the new $6,000 deduction for taxpayers 65 and older.
-
Do You Need Flood Insurance? I'm an Insurance Expert, and Here's Where You Can Get It
Standard homeowners insurance does not cover flood damage, so you might need separate flood insurance, which you can get either through FEMA or private companies. Here are the details.
-
I'm an Investment Professional: These Are the Three Money Tips I'm Giving My College Grad
College grads can help set themselves up for financial independence by focusing on emergency savings, opting into a 401(k) at work (if it's offered) and disciplined, long-term investing.
-
New SALT Cap Deduction: Unlock Massive Tax Savings with Non-Grantor Trusts
The One Big Beautiful Bill Act's increase of the state and local tax (SALT) deduction cap creates an opportunity to use multiple non-grantor trusts to maximize deductions and enhance estate planning.
-
Know Your ABDs? A Beginner's Guide to Medicare Basics
Medicare is an alphabet soup — and the rules can be just as confusing as the terminology. Conquer the system with this beginner's guide to Parts A, B and D.
-
I'm an Investment Adviser: Why Playing Defense Can Win the Investing Game
Chasing large returns through gold and other alternative investments might be thrilling, but playing defensive 'small ball' with your investments can be a winning formula.
-
Five Big Beautiful Bill Changes and How Wealthy Retirees Can Benefit
Here's how wealthy retirees can plan for the changes in the new tax legislation, including what it means for tax rates, the SALT cap, charitable giving, estate taxes and other deductions and credits.
-
Portfolio Manager Busts Five Myths About International Investing
These common misconceptions lead many investors to overlook international markets, but embracing global diversification can enhance portfolio resilience and unlock long-term growth.
-
I'm a Financial Planner: Here Are Five Smart Moves for DIY Investors
You'll go further as a DIY investor with a solid game plan. Here are five tips to help you put together a strategy you can rely on over the years to come.