Procrastinating would force investors to miss out on up to 16 months of potential gains – the period between January of the tax year up to Tax Day in April during the following year, along with potential compounded gains year over year.
McNeill calculates that an investors who contributed about $170,500 at the start of January each year over 31 years at a hypothetical 7% return would end up with $83,000 in additional savings after 30 years, compared to someone who invests the same amount each April 15 of the following year.
For the 2013 and 2014 tax years, traditional and Roth IRA contributions are set at $5,500 for those under 50, and investors 50 and older can contribute as much as $6,500. [How to Use ETFs in an IRA]
Investors can use ETFs in their traditional and Roth IRAs. The funds trade like any regular stock, which means investors can buy and sell ETFs on a brokerage exchange. Additionally, a number of online brokers offer commission-free ETF trades, which allow investors to rebalance or add some ETF positions free of charge. [Six Popular Commission-Free ETF Trading Platforms]
For more information on saving toward retirement, visit our retirement category.