What happens if I don’t complete my IRA funding in 2023?

Saving for retirement in a traditional IRA is beneficial for several reasons. First, the money you invest in one of these accounts grows on a tax-deferred basis. This means that profits from an IRA are not taxed every year, but only when they are withdrawn.

Another big benefit of investing money in a traditional IRA is that it shields a portion of your income from taxes. So if you invest $1,000 in an IRA, the IRS can’t tax that portion of your income.

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

And to be clear, you don’t have to “fall behind” on your IRA contributions to put in that extra $1,000. All you have to do is turn 50 or already be over 50 by the time you want to invest an extra $1,000 a year.

Your goal may have been to max out your IRA or contribute another amount in 2023. But if you don’t, you may be worried that you’ll run out of time. But the good news is that you may have more flexibility to fund the account than you might expect.

It takes more time than I thought.

If you want to invest more money in your 401(k) in 2023, you only have until December 31 to contribute additional funds. Amounts donated after December 31 will not be included for 2023 purposes.

But IRAs work differently. With an IRA, you can complete funding your account by the following year’s tax filing deadline. What this means is that you need to fund your IRA by April 15, 2024, and keep it in effect until 2023.

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

Automatic donations can help you stay on track.

Some people fund their IRAs by transferring money into that account at the end of each month. However, if you take this approach, you may end up spending extra money for a month and not be able to donate. This can lead to a situation where the end of the year is approaching and your savings goals aren’t met.

A better bet? Figure out how much you can afford to invest for retirement each year, then set up automatic transfers to your brokerage account.

Let’s say you think donating $3,000 a year is within your reach. What you want to do is set up an automatic transfer of $250 each month to your IRA so that the money arrives in your IRA without you having to do anything.

There’s still plenty of time to complete your IRA funding for 2023, so don’t panic if you haven’t reached the limit or deposited the amount you want to contribute this year. However, it is generally best to complete IRA funding during a given year. This will allow you to focus on funding your IRA for the following year after January 1st. Consider setting up automatic transfers so you don’t have to struggle to fund your IRA in the future.

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