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Here’s What Happens if You Don’t Finish Funding Your IRA in 2023

Saving for retirement in a traditional IRA is beneficial for a couple of reasons. First, the money you invest in one of these accounts gets to grow on a tax-deferred basis. This means gains in your IRA aren’t taxed year to year, but rather, only when you take withdrawals.

Another big benefit of putting money into a traditional IRA is that you get to shield some of your income from taxes. So if you put $1,000 into an IRA, the IRS can’t tax you on that portion of your earnings.

IRA contributions, however, max out at a certain limit that can change from year to year. In 2023, you can contribute up to $6,500 to an IRA if you’re under the age of 50. If you’re 50 or older, the limit is $7,500 thanks to a $1,000 catch-up contribution option.

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And to be clear, you don’t have to be “behind” on IRA contributions to put in that extra $1,000. All you have to do is turn 50 at some point during the year you want to put in that extra $1,000, or be above the age of 50 already.

Your goal may have been to max out your IRA in 2023, or to contribute a different amount. But if it didn’t happen, you may be worried about running out of time. The good news, though, is that you may have more flexibility to fund that account than expected.

You get more time than you think

If you’re looking to put more money into your 401(k) for 2023, then you only have until Dec. 31 to contribute additional funds. Money contributed beyond Dec. 31 won’t count for 2023 purposes.

IRAs work differently, though. With an IRA, you get until the following year’s tax-filing deadline to finish funding your account. What this means is that you have until April 15, 2024 to fund your IRA and have it count for 2023.

So let’s say you’re 40 years old and want to max out your 2023 IRA, but you’ve only put $5,000 into that account to date. It may not be feasible to come up with an additional $1,500 in the next two weeks. But it may be feasible to come up with that money over the next four months.

Automatic contributions could help you stay on track

Some people fund their IRAs by transferring money into those accounts at the end of the month. But if you take this approach, you might have a month when you spend extra and therefore can’t make a contribution. That could lead to a situation where you’re nearing the end of the year and your savings goal hasn’t been met.

A better bet? Figure out what you can afford to invest for retirement on an annual basis, and then set up an automatic transfer to your brokerage account.

Let’s say you feel that contributing $3,000 a year is what’s feasible for you. What you’d want to do is set up an automatic transfer of $250 a month into your IRA so that money lands there without you having to take any action.

There’s still plenty of time to finish funding your IRA for 2023, so don’t panic if you haven’t maxed out or put in the amount you wanted to contribute this year. But in general, it’s best to finish funding an IRA during the calendar year it’s designated for. That way, you can focus on funding your IRA for the following year after Jan. 1. Going forward, consider setting up an automatic transfer so you don’t feel as if you have to scramble to get your IRA funded.

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