While many people advocate contributing to an IRA as soon as you can afford to do so, you have until the tax deadline the following year to finalize your contributions. In fact, it might make sense for some to get a clearer picture of their tax situation before making IRA contributions. That way, you can maximize the value of your IRA options.
Opening an IRA is fast, easy, and free. Check out our list of the best IRA brokers to get started before Tax Day. You have two options for an IRA: traditional and Roth. And which one works best for your will depend on your current tax situation.
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Maximizing your contribution
The biggest difference between a traditional IRA and a Roth IRA is when the IRS taxes you. With a traditional IRA, you receive a tax deduction today in exchange for paying taxes on withdrawals in retirement. With a Roth IRA, you pay taxes today at your normal income tax rate, but you won't pay any taxes on retirement withdrawals.
Importantly, while there are two types of IRAs you can contribute to, they're both subject to the same contribution limit. For 2025, the IRA contribution limit is $7,000. You can split that contribution however you feel: half in a traditional IRA and half in a Roth, or all in one and nothing in the other, or anything in between. As long as your total contributions don't exceed $7,000, you're good.
Some individuals may have limits on their contributions. Traditional IRA contributions are deductible, but only if your earnings are below a specified amount. If you earned over that amount in 2025, you'll want to explore whether you're eligible to contribute to a Roth IRA. Roth IRA contributions are limited by your earnings as well, with higher limits than the traditional IRA deduction phaseout. Those earning above the Roth IRA limits can explore the potential to use the backdoor Roth IRA strategy.
One of the biggest advantages of waiting to make your IRA contribution until you have a clear picture of your tax situation is that you can get a precise assessment of exactly how much you could save on your taxes by making a traditional IRA deduction. Traditional IRA contributions will lower your AGI, which not only reduces the amount of tax you'll owe, but it can also impact certain tax credits, increasing the effective tax savings. For example, those receiving a subsidy from the Affordable Care Act could receive a larger subsidy. It may also lower your AGI to the point where you qualify for the saver's credit or the child tax credit.
If you're using software to file your taxes, you can see exactly how contributing to a traditional IRA will impact your tax liability. Divide the amount it reduces your tax liability by your contribution amount to calculate your effective tax rate. It might be surprisingly high or surprisingly low. If it's low, it's probably best to use a Roth IRA to maximize your contribution.
