Does it Matter When You Contribute to an IRA?
When contributions to an IRA are consistently made at the beginning of the year rather than at the end, the funds have an extra 12 months in which to grow.
Over a period of years there is a substantial difference in the amount accumulated.
$2000 per Year Accumulated at Various Rates of Return
Number of Years From the Beginning of the First Year |
Contribution Made Jan. 1 |
5% Return Contribution Made Dec. 31 |
Increase in Amount Accumulated |
5 |
$11,604 |
$11,051 |
$553 |
10 |
26,414 |
31,875 |
1,221 |
15 |
45,315 |
63,545 |
6,354 |
20 |
69,439 |
114,550 |
11,455 |
25 |
100,227 |
196,694 |
19,670 |
30 |
139,522 |
328,988 |
32,899 |
35 |
189,673 |
542,049 |
54,208 |
40 |
253,680 |
885,185 |
88,519 |
Number of Years From the Beginning of the First Year |
Contribution Made Jan.1 |
10% Return Contribution Made Dec. 31 |
Increase in Amount Accumulated |
5 |
$13,431 |
$12,210 |
$1,221 |
10 |
35,062 |
31,875 |
3,187 |
15 |
39,899 |
63,545 |
6,354 |
20 |
126,005 |
114,550 |
11,455 |
25 |
216,364 |
196,694 |
19,670 |
30 |
361,887 |
328,988 |
32,899 |
35 |
596,254 |
542,049 |
54,205 |
40 |
973,704 |
885,185 |
88,519 |
The overall effect is that you have one full extra year of growth when you make the contribution at the beginning of the tax year.