If you didn’t fund your IRA on January 1st, you’ve already missed out on a month of tax-free returns—about 2.4% in the S&P500.

Funding your IRA at the beginning of the year (rather than the end) historically has resulted in higher returns of roughly $705 per year. This isn’t about market timing, it’s just about the time in the market. And all you need to do is be there when the markets open.

Why might you want to submit your financial homework 15 months before it’s due? Because you’ll most likely end up with more money in the long run. By funding your this year’s IRA now, you give that savings another year to grow, tax free. Let’s take a look at what this means in dollar terms though.



Final Value

Total Return

Difference from EOY

Fund in December




Fund in January





Fund monthly





Returns are from the S&P500 Total Return index from Jan 1, 1990 till Dec 31, 2012. Assumes all dividends are reinvested, and that cash not invested earns no interest.

Since 1990, saving $5,500 in an IRA at the beginning of the year rather than waiting till the end would have resulted in an extra $16,215 in your account.  Note that this is not about differences in the amount you contributed—every case contributes $126,600 in total. It’s about the amount of time that money spends in the market, accumulating dividends and appreciating in capital.

Funding your IRA with $5,500 in January every year since 1990 would have resulted in an end balance of $239,843, compared to $223,620 for funding it in December. This equates to roughly $705 per year. That’s $705 every year you earn just for showing up on time.

If you don’t have the money sitting around to fund an IRA all at once (don’t worry, most of us don’t),  you should still try to set up a savings plan to max-out your IRA by saving every month ( $458 per month). Setting up an auto-deposit which invests monthly is still better than waiting till the end of year. We can likewise see that contributing monthly would have resulted in $10,531 more in your account on between 1990 and 2012 than if you saved your money in a checking account, and invested at the end of the year. That’s about $500 of extra money every year.

That’s a lot of worms.