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.
-
Ask the Editor — Tax Questions on Inherited IRAs
Ask the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on the rules on inheriting IRAs.
-
I Asked Experts When It's Worth Splurging on Beauty and Skincare — and When You Can Save
Smart Shopping Experts agree that while you don't have to spend three figures on your products, some higher-priced items have value.
-
Retiring Early? This Strategy Cuts Your Income Tax to Zero
When retiring early, married couples can use this little-known (and legitimate) strategy to take a six-figure income every year — tax-free.
-
Ditch the Golf Shoes: Your Retirement Needs a Side Gig
A side gig in retirement can help combat boredom, loneliness and the threat of inflation eroding your savings. And the earlier you start planning, the better.
-
Roth IRA Conversions in the Summer? Why Now May Be the Sweet Spot
Converting now would enable you to spread a possible tax hit over more than one payment while reducing future taxes.
-
A Financial Expert's Three Steps to Becoming Debt-Free (Even in This Economy)
If debt has you spiraling, now is the time to take a few common-sense steps to help knock it down and get it under control.
-
I'm an Insurance Expert: This Is How Your Insurance Protects You While You're on Vacation
Here are three key things to consider about your insurance (auto, property and health) when traveling within the U.S., including coverage for rental cars, personal belongings and medical emergencies.
-
Investing Professionals Agree: Discipline Beats Drama Right Now
Big portfolio adjustments can do more harm than good. Financial experts suggest making thoughtful, strategic moves that fit your long-term goals.
-
'Doing Something' Because of Volatility Can Hurt You: Portfolio Manager Recommends Doing This Instead
Yes, it's hard, but if you tune out the siren song of high-flying sectors, resist acting on impulse and focus on your goals, you and your portfolio could be much better off.
-
Social Security's First Beneficiary Lived to Be 100: Will You?
Ida May Fuller, Social Security's first beneficiary, retired in 1939 and died in 1975. Today, we should all be planning for a retirement that's as long as Ida's.