Best Times to Invest in an IRA

By Peter A. Elwell, CFA | January 22, 2024

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An individual retirement account (IRA) is a common investment account that people use to set themselves up for retirement. These accounts help individuals save for the long term by contributing a certain amount each year and choosing from various investment options to gain earnings. The primary goal of the IRA is to support those who may not have access to a qualified retirement plan through their job, also known as an employer-sponsored plan.

Such workplace retirement accounts, like a 401(k), are managed by employers, whereas most IRAs are self-managed by individuals who want to gain tax advantages and access financial investments like bonds, stocks, mutual funds, exchange-traded funds (ETFs), and real estate investment trusts (REITs). If you’re thinking of opening an account, keep reading to learn when to invest in an IRA.

Types of IRAs 

The first step to IRA investing is understanding the various types. Some IRAs may be more suitable to open at different times, depending on your age, current job, and goals for retirement. Here are the most common IRA account types:

  • Traditional IRA: Investors can use contributions to reduce their taxable income, but withdrawals are taxed as income when distributed during retirement. These accounts are suitable for those who think they may be in a lower tax bracket during retirement than they are currently.
  • Roth IRA: Contributions to a Roth IRA are not tax deductible, meaning they’re made with after-tax dollars. However, qualified withdrawals are entirely tax-free. This type of IRA may be ideal for someone who prefers to get their tax advantage later in retirement.
  • SIMPLE IRA: A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a type of employee retirement plan much like a 401(k). Employees can contribute to this account through salary deferral, and employers may match contributions to a certain percentage.
  • SEP IRA: Contributions to a Simplified Employee Pension Plan (SEP) IRA are tax deductible. SEP IRAs also offer tax-deferred growth on investments until retirement, when distributions are taxed as income. Small business owners generally use SEP IRAs for their employees because they gain tax benefits.

This is just scratching the surface of IRAs. Some of these retirement investment plans also offer benefits like catch-up contributions, which allow individuals over a certain age to contribute to an IRA more than the annual limit to make up for missed time.

When Is the Best Time to Put Money in an IRA?

When it comes to opening an IRA account, the consensus is “the sooner, the better.” This is because the longer you can contribute to the account, the more potential you have to grow earnings that set you up for retirement. Contributing regularly also enables you to access certain tax advantages. The best times to open an IRA are when:

The best times to open an IRA are when:

  • You’re a young professional at the beginning of your career
  • You expect your income to increase in the future
  • Before income tax rates rise

For instance, the taxes you pay on contributions to a Roth IRA depend on how much you earn. For this reason, investing in this type of account is recommended when you’re young and making less money, as you will be taxed less. Investing your money as early as possible gives it more time to grow in value and potentially yield higher returns. However, once you open the account, you might be wondering at what point during the year to make your contributions.

Additionally, opening an IRA can be favorable when federal income tax rates are lower. For instance, the current federal income tax rates are set to expire in 2025, according to the Tax Cuts and Jobs Act. However, it’s not guaranteed that these rates will be extended, and they will likely fluctuate in the future.

The most important thing to remember is to contribute at least once a year. How often you contribute to a self-directed IRA is entirely up to you. For some investors, making one maximum contribution at the beginning of the year works best for them. For others, contributing right around tax season or even right before the deadline is more suitable. While some individuals may not be able to invest every single month, spreading out your contributions instead of providing a lump sum can have its benefits. 

For example, drip-feeding your money into an IRA can help you hedge against price volatility better than spending a lump sum buying an asset that declines in price. Additionally, spreading out contributions allows you to capitalize on dollar-cost averaging, or regularly making investments in certain assets over a period.

The best time to invest in your IRA can depend on other personal factors, such as how much you have in your account and the stock market at the time. When a market declines, you can purchase more shares at a lower market value than you would when the market is higher. While markets can be volatile, you’re more likely to see higher returns the longer you keep money in the market.

Find a contribution schedule that works for your income and expense cycle and develop consistency. Whether it’s once a month, several times a year, or once a year.

Tips for Maximizing Your IRA Contributions

Any investment, including an IRA, has its benefits and risks. However, there are certainly ways you can potentially maximize your retirement and investment benefits. If you want to make the most of your contributions, here are some suggestions that may help you see a larger return:

  • Make maximum contributions: If you can, it’s usually worth your while to max out your contributions to your IRA each year. Let’s assume your IRA grows at an annual, compounded return rate of 6%. Over the years, your savings will snowball and end up much higher if you contribute the maximum of $6,500 each year to your IRA instead of only $1,000 annually.
  • Set up automatic contributions: Having money taken out of your paycheck automatically can help you stay on track with contributions and keep them consistent. If the money is deducted before you get paid, as with 401(k)s, your IRA savings will add up before you know it.
  • Contribute before you file your taxes: Some investors contribute to their IRAs right before the deadline when they file their taxes in April. However, waiting until tax day means your contributions lose out on about 15 months of tax-free or tax-deferred growth. Contributing early in the year allows your money to compound for longer, even if they are smaller contributions.
  • Convert to a Roth IRA: For some investors, converting funds from an existing traditional IRA into a Roth IRA offers tax-efficient savings. While there are certain rules and requirements for this conversion, it can make sense for some taxpayers who find themselves in a lower tax bracket during retirement or earn too much to be eligible for a Roth IRA in the first place.
  • Consider your entire portfolio: Your IRA might not be your only savings fund for your future. If you have a 401(k) through your job, for example, you might consider using your IRA to diversify more and combat stock market risk. There are plenty of specialized funds and investment options that may be worth exploring, including a self-directed IRA or real estate. Investing in a REIT, for example, provides access to passive income through rental properties. Knowing what’s available can help you decide what to invest in through your IRA.

Learn More About Investing in an IRA With 1031 Crowdfunding

As with any investment, weighing the potential benefits and risks is critical. IRAs are no different, which is why it can take some research before you decide which one is best for you and find a contribution schedule that fits your needs. At 1031 Crowdfunding, we know that retirement investing can seem complex.

Our experienced team has the knowledge to help you understand what you can do with your IRA and view alternative investment strategies. Our platform makes it easy to view IRA-qualified real estate investment options that align with your eligibility and financial goals. Register for an investor account with 1031 Crowdfunding today or learn more about IRA and retirement funds.

Learn More

This material does not constitute an offer to sell or a solicitation of an offer to buy any security. An offer can only be made by a prospectus that contains more complete information on risks, management fees and other expenses. This literature must be accompanied by, and read in conjunction with, a prospectus or private placement memorandum to fully understand the implications and risks of the offering of securities to which it relates. As with all investing, investing in private placements is speculative in nature and involves a degree of risk, including loss of your principal. Past performance is not necessarily indicative of future results and forward-looking statements and projections are not guaranteed to achieve the results described and your actual returns may vary significantly. Investments in private placements are illiquid in nature and there may be no secondary market or ability to sell the investment should the need for liquidity arise. This material should not be construed as tax advice and you should consult with your tax advisor as individual tax situations will vary. Securities offered through Capulent, LLC Member FINRA, SIPC.

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