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

By Matthew Frankel, CFP® – Updated Dec 28, 2018 at 11:40AM

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There are arguments in favor of the strategy.

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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