Personal Finance

1 Smart Move You Can Make by April 15 (Aside From Filing Your Taxes)

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April 15 isn't just the deadline to file your 2014 income taxes. It's also the last day you can contribute to your individual retirement account and have your contribution count toward your 2014 limit. So if you haven't maxed out your IRA contribution for 2014, or if you haven't opened an IRA at all, you still have a few months to do so. And even a little extra now could make a huge difference over the long run as you work toward retirement.

You have more than 15 months to contribute each year

The IRS allows an annual maximum of $5,500 in IRA contributions for the 2014 and 2015 tax years, plus an extra $1,000 if you're aged 50 or older.

A contribution can count toward a specific tax year if it's made during that calendar year or before the April 15 tax-filing deadline of the following calendar year. That means 2014 contributions could be made anytime between Jan. 1, 2014 and April 15, 2015. Meanwhile, 2015 contributions can be made from now until April 2016.

Between now and April 15, you can contribute the maximum amount as a 2015 contribution and the same amount (minus any contributions you already made) as a 2014 contribution. So you could hypothetically contribute $11,000 during 2015.

Why it's so important

You may be thinking, "Why should I worry about backdating a contribution for 2014? Why not just start with 2015 and contribute every year from now on?"

Basically, time is the most powerful force in retirement investing, and contributing even a little more now can make a significant difference in how much money you have in retirement.

Let's consider two scenarios. In the first, a 30-year-old investor starts an IRA right now and contributes the maximum of $5,500 during the rest of 2015. He or she also contributes another $5,500 annually from now until retirement at age 65. If the contributions grow at an average of 8% per year (less than the S&P 500 's historical average), that investor will have an account worth just over $1.03 million by the time he or she turns 65.

Now what if the same investor really buckled down and contributed $11,000 ($5,500 each for the 2014 and 2015 tax years) to the new IRA during 2015? All the other information remains the same. How much of a difference could that extra $5,500 make? Quite a lot. In this scenario, the account would have grown to more than $1.11 million -- an extra $80,000 -- thanks to that additional contribution for the 2014 tax year.

You don't need to "max out" to have an impact

If you can't come up with the maximum allowable contribution, don't worry. Even a few hundred dollars more now could have a big impact on your retirement savings. In our example, every $100 contributed now could be worth $1,600 in 35 years.

The point here is that until April 15 you have a unique opportunity to double up on your retirement savings when it matters the most. Your time advantage will never be better than it is now, so the more you can contribute early in the game, the better off you'll be in the long run.

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