Extending the Period for Maximizing IRA Contributions Beyond What You Might Initially Consider
Individual retirement accounts (IRAs) are accessible to anyone generating taxable income, even if you're already receiving retirement benefits from work. Similar to other retirement savings options, IRAs provide tax benefits. Contributing to a traditional IRA offers a current tax deduction, while a Roth IRA provides tax-free withdrawals in the future. The annual contribution cap for IRAs is lower than other tax-advantaged accounts, amounting to $7,000 overall in 2024, or $8,000 if you're 50 or older.
If you have multiple IRAs, such as a Roth IRA and a traditional IRA, you can contribute a total of $7,000 across both, not $7,000 per account. You can split your contributions as you prefer, but Roth contributions have income-based limitations, and traditional IRA deductions are limited if you or your spouse have a work-related retirement plan.
While some retirement accounts require contributions to be made by December 31 to take advantage of tax benefits, IRAs give you extra time.
When is the IRA contribution deadline?
The final day to contribute towards your IRA's annual limit is the tax year's filing deadline. For instance, you have until April 15, 2025 – when 2024 tax returns are due – to reach your 2024 IRA contribution maximum. Contributions for 2025 can be made until April 15, 2026, and so on.
Submitting an extension for your tax return does not extend the IRA contribution deadline.
Why you might want to max out your annual contributions
If you haven't met your annual IRA contribution limit in 2024 for any reason––for example, opening the account later in the year or making smaller contributions throughout––you can make contributions in early 2025 and add extra funds to your 2024 limit. If you earn more or have additional funds to invest later in the year, you'll be able to take full advantage of the maximum tax benefits for both years. You might even gain an advantage by maxing out 2025 contributions before the end of the year and being able to make a larger, initial contribution towards the following year on January 1, 2026 (early investments benefit from more compounding time).
The best strategy for your money and investments depends on your unique situation, and consulting with a tax professional before making significant decisions is always wise.
How to change your chosen tax year for contributions
Typically, your IRA contributions will be applied to the tax year they were made in. Contributions made before December 31, 2024, will be allocated to your 2024 limit, while contributions made on January 1, 2025, and later will be assigned to your 2025 limit. If you want contributions made on or after January 1 to be assigned to the previous tax year, contact your IRA brokerage. You can usually do this both proactively and retroactively up until April 15, but you'll need to find out your brokerage's process for managing tax year preferences.
If you unintentionally contribute more than the annual limit, you have until your return is filed to transfer or withdraw the excess. Otherwise, you'll face a 6% tax penalty on that amount.
To make the most of your retirement savings, it's important to understand the IRA contribution deadline. The final day to contribute towards your IRA's annual limit is actually the tax year's filing deadline. For example, you have until April 15, 2025, to reach your 2024 IRA contribution maximum, as contributions for 2025 can only be made until April 15, 2026. Therefore, maximizing your retirement contributions before the deadline, such as maxing out 2025 contributions before the end of the year, can significantly benefit your investments due to more compounding time. However, it's crucial to ensure that you do not max out retirement contributions before the deadline to avoid missing out on potential tax benefits.
