The tax-exempt Roth IRA is one of the most effective retirement planning vehicles, and the sooner you take full advantage of its benefits, the better off you'll be in the long run. The only real downside to the Roth IRA is that it comes with contribution limits (you can only contribute so much in any one year) and income limits (you have to make under a certain amount to be able to contribute directly). 

Here, we'll go over how to max out your Roth IRA for both 2021 and 2022, even if you start after the turn of the new year. 

Take care of 2021 first

Before we start, let's assume you fall within the income limits to directly contribute to a Roth IRA in 2021; in other words, you earn under $125,000 as a single individual or $198,000 as a married couple. If this fits your profile, you'll be able to directly stash money into a Roth IRA for the 2021 tax year, up to a contribution limit of $6,000 if you're under 50 and $7,000 if you're 50 or over. 

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Recall that you contribute to a Roth IRA with after-tax earnings (like the money you'd receive in your bank account from a paycheck). After contributing, you can take advantage of tax-free compound growth, which will be available to you penalty-free in retirement -- so long as you've had the account open for at least five years. 

The IRS allows you to retroactively contribute to your Roth IRA for a given tax year as long as you do it by April 15 of the following year. As an example, even if you contributed nothing to your Roth IRA in 2021 thus far, you still have until April 15, 2022 to do it. You won't receive a tax deduction for the contribution, but you will take advantage of valuable tax-exempt investing space. 

If you do decide to max out your Roth IRA on Jan. 1, 2022, be sure that your 2021 allotment is filled up; that is, make sure you've contributed up to your full 2021 limit before you attack contributions for 2022. This assures you're making the most of the (limited) space that you have. 

Finish off 2022 as soon as possible 

Once you've contributed the maximum for the 2021 tax year, you can then look to maximizing your 2022 Roth contributions. The ideal scenario for someone who didn't contribute to their Roth IRA in 2021 is to do both on Jan. 1st: Add the maximum allowed for 2021 first, and then add the maximum allowed for 2022 shortly after. For those under 50, this amounts to a total contribution of $12,000 ($14,000 for those over 50). 

The key benefit of doing this sooner rather than later is that your money has more time to compound in a tax-free manner; the effect is amplified because Roth space is uniquely valuable, and there isn't much space to begin with. So it's smart to take advantage of everything you can, while you still can

It's also good to know that you can withdraw Roth contributions at any time, both tax- and penalty-free. If you're under 59.5 and you tap Roth IRA money before five years have elapsed since account opening, you'll have to pay taxes and penalties on the earnings portion of your withdrawal.

In summary, it's best to open your Roth IRA as soon as possible and avoid taking anything from it until you've reached age 59.5. Think of your Roth IRA as the core of your nest egg -- if you can avoid touching it, you'll be far better off in the long run. 

Think long term

Saving for retirement is probably not the most exciting thing you'll do over the holidays, but the long-term effects of your good decisions now will have exponentially better effects in the future. Doing these very small things now -- like opening and contributing to a Roth IRA -- may feel like you aren't doing much. But as time goes on and compound interest takes hold, you'll be setting yourself up for a very prosperous future.