Personal Finance

Ask a Fool: Should I Make My IRA Contribution All at Once?

Q: I just opened my first IRA and I plan to contribute the maximum of $6,000 in 2019. Would I be better off contributing all of it at once, or should I spread it out throughout the year?

First off, neither plan is a bad idea. Contributing the maximum allowable amount to your IRA is a great financial move, no matter how you do it.

Having said that, there are positives and negatives to both options.

If you contribute all $6,000 at once, you can invest in a few different stocks or funds at the same time without getting crushed by trading commissions. For example, if you invest in four different stocks and pay a $6.99 trading commission for each one, this represents less than 0.5% of your $6,000.

Meanwhile, if you contribute $500 per month and spread it over four stocks each time, those commissions represent nearly 6% of each deposit -- not a smart idea.

On the other hand, contributing $500 per month allows you to take advantage of varying stock prices throughout the year. In other words, if you invest all $6,000 now and one of your stocks drops by 30%, you'll have no more money to take advantage of the lower price. Investing gradually allows you to average into your positions over time, taking advantage of market corrections and crashes.

As a final thought, it's worth pointing out that you can still make a 2018 contribution to your IRA until the April tax deadline. So you could potentially get the best of both worlds -- make a lump-sum contribution now that's classified as a 2018 contribution and spread your 2019 IRA contribution out throughout the year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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