Waiting fifteen months to contribute can really add up over time. The following hypothetical illustration shows the difference in tax-deferred earnings potential between funding an IRA on January 1st of the current year, the earliest available funding, versus waiting until April 15th tax deadline of the following year, the latest you can fund your IRA.
This calculation assumes a 7% rate of return, and that the maximum contribution is made each year. The contribution limit is $4,000 in 2005 and increases to $5,000 in 2008. This calculation also includes the full catch-up contribution in the year the individual turns age 50 and every year thereafter (the catch-up is $500 in years 2002 through 2005 and increases to $1000 in 2006). The rate of return is calculated on an annual basis and is for illustrative purposes only; it does not represent any currently available investments.
Using the above assumptions, a 25 year old funds his IRA on January first every year as opposed to April 15 the following year, will end up with $1,047,689 at age 65, but will only have $980,254 if he waites until April 15 the following year to fund the IRA. That's a $67,435 potential increase in savings for not waiting.
At age 45 the potential saving difference is $19,939.
Even at age 60 the potential increased savings is $2272
For couples adding to their IRAs annually the potential increased savings is doubled that of the individual
Annual Contribution limits are now set at $4000 per year and will increase to $5,000 in 2008. Investors who are 50 years and older are eligible for Catch-up Contributions of an additional $500 per year in 2002 through 2005, and increases to $1000 starting in 2006.
Investors can add IRA Rollover assets at any time.
Take Advantage of Early Contributions to an IRA to increase Your Potential for Tax-Deferred Growth, OR Tax Free Growth using a ROTH IRA.
Raymond James Financial Services
Anthony J Vignocchi
2750 Stickney Point Road
Sarasota, Florida 34231
EMAIL: Anthony. Vignocchi@RaymondJames.com
Phone: 941- 922-8588