Investors who wait until the final minutes before submitting tax statement to contribute to their retirement accounts are losing money every year. While it’s better to make any contribution rather than none at all, waiting until the last minute prevents the growth of your lifetime contributions. All the months of compound interests are forfeited in favor of haphazard untimely contribution.The way retirement savers lose money is by waiting until the last minute and putting untimely last minute contributions into account that don’t yield returns.
Advisors call this investment lack of strategy as a “procrastination penalty.” This indecisive method of investment yields poor gain and can be detrimental to the long-term growth of your retirement account. By following a few simple guidelines, you can avoid this stagnant method of retirement planning.
- Scheduled Contributions
Ideally you would want to place a lump sum of cash into your IRA at the beginning of the year to maximize gains. If this is not possible, you can still increase your earnings by making monthly contributions throughout the year by scheduling a plan with your financial advisor. Monthly contributions will increase your fund slowly and still allow incremental gains throughout the year.
- Maximum Contributions
If you are capable of making the maximum contribution into your IRA, you should consider taking advantage of this tax saving method of retirement saving. The vast majority of 401k plans are combined into IRAs once investors retire. Many 401k plans are “rolled over, so prioritizing the allocations in your 401k is wise but not to the neglect of your IRA plan. Take advantage of these contribution limits and grow your IRA in concert with your 401k.
- Roth IRA.
Roth IRAs are often a forgotten piece of the retirement diversification plan for seniors. Unlike their counterpart, Roth IRAs are composed of taxed income that have no further federal income liability. Roth IRAs don’t have required minimum distributions after age 70 granting senior greater financial freedom.
- Roth conversions
Taxpayers who do not qualify for deferred federal tax Roth IRAs should still consider making post-tax contributions to a traditional IRA. Conversion allows the taxes to be paid on your investment while it may be more affordable.
- Preselected Funds
Instead of allowing your investment to sit in a money fund that provides little growth, choose a retirement date account or mixed fund as your contribution choice to maximize the growth potential of your investment.