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Delaying Your IRA Contribution

The window of time to make an IRA contribution is from January 1 of the tax year through the following year’s tax-filing deadline. But if you are like most of my clients, you will wait until the last minute to make your IRA contribution. And while this is ok from a tax perspective, you might be missing out.

Potential Gains Missed

Investors who make contributions at the last moment miss out on 16 months of potential gains from January of one year through April of the following year. And not only do procrastinators miss out on 16 months of performance, it is then made worse because those gains cannot compound over many years.

Take 2016 as a perfect example – the Dow Jones Industrial Average, with dividends reinvested, returned more than 16% last year. And small cap stocks, as measured by the Russell 2000 Index, returned over 21%. That is a lot to have missed
out on.

But need more than one year of proof? Well consider the latest research from Vanguard:

The Procrastination Penalty

According to research from Vanguard, the difference between making an IRA contribution in January compared to waiting until April of the following year can result in a “procrastination penalty.”

Don’t Leave Money on the Table

Another downside to putting off contributions until the last minute is that it could ultimately increase your tax bill. Because money in a taxable account over that 16-month period may incur taxable gains that could have been deferred if invested in an IRA.

So, while you might just now be thinking of making a contribution for the 2016 tax year, you should be thinking about next year too. If you call my office, we can help you with your decision.

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