Wealth Management, Retirement Planning

Both Traditional and Roth IRAs are among the most effective retirement savings tools because of the tax advantages they provide. How much and how often to contribute to an IRA depends on a few factors, which La Ferla Group will break down in this blog.

When to Start Contributing

In general, when it comes to contributing to an IRA, the earlier, the better. This is because the sooner someone starts investing, the more time their investments have to grow.

In addition, since someone who starts investing earlier has more time to recoup their capital losses (if necessary), they can use a more aggressive asset allocation model. By allocating the money in their IRA more aggressively, the potential return on investment increases.

3 Factors that Influence Contribution Amounts

1. Desired Retirement

The target date when someone wants to retire and the lifestyle they’d like to live during retirement will influence the recommended amount they should contribute.

For example, someone who wants to retire early and travel often should seriously consider maxing out their IRA each fiscal year.

2. IRS Restrictions

One of the things to consider when calculating how much to contribute to an IRA is the IRS limit. The following limitations apply to both Traditional IRAs and Roth IRAs in 2019:

  • $6,000 for people under the age of 50
  • $7,000 for people over the age of 50

If someone under the age of 50 was seeking to max out their IRA contributions for the year 2019, they would contribute $500 per month.

3. Financial Limitations

Although IRAs are excellent retirement savings tools, they’re not necessarily a priority.

It’s typically recommended for people with access to employer-matched contributions to take full advantage of the match percentage before contributing to an IRA. This is because the employer match is essentially extra money in their retirement account at no real cost.

In addition, it’s highly recommended to pay off high-interest debt first. Leftover money can be contributed to an IRA.

How Often to Contribute

There’s no ideal schedule of how often to contribute to an IRA. It will likely change depending on each investor’s financial situation. For example, some investors might have a lump sum of $6,000 of disposable income that they can contribute at the beginning of each year, while others will have to make smaller weekly or monthly contributions.

While the amount of money and how often to contribute to an IRA varies depending on an investor’s financial situation, it is typically recommended to contribute the maximum each fiscal year.

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