At the end of last year you may have been scrambling to max out your retirement accounts such as 401(k), IRA, and Roth IRA. But what if you thought about the timing of the funding a little bit differently? When is the best time to fund your 401(k)?
Inversion
In the spirit of the famous mathematician Jacobi, who famously said, “Invert, always invert,” here’s an idea for you.
What if you fund more of your retirement accounts now in January as opposed to later in the year? It may be a little tricky because of cash flow concerns but here’s an explanation on how to do it.
Funding Timeline
Funding your 401(k) will take some time because of the auto deductions from your paycheck. You probably can’t get it completed in January. However, if you can put in extra dollars earlier in the year, more money gets invested in a quicker way and it starts working for you.
For your IRA or Roth IRA contribution, it’s a bit more straightforward. If you can afford to do so, fund the entire $7,000 right away! You get the money earning money for you.
Returns Example
For example, in 2024, the S&P 500 returned 23%. If you invested the money in January last year, you would have captured most of the gain. However, if you waited until December to fund your retirement accounts, you would have missed most of the gains.
You may be thinking that it’s not that big of a deal to do this, but over time, the dollars accumulate, and grow quicker and quicker as you go.
If it’s within your budget, fund as much as you can to your retirement accounts right away. Do you have questions about when is the best time to fund your 401(k)? Please feel free to reach out.