What Happens When You Stop Contributing to Your IRA?

The whole purpose of saving in an IRA account is to build up a nest egg for retirement. And the reason you're better off putting your money into an IRA instead of a savings account is that with an IRA, you get a tax break on your money. 

Traditional IRA contributions go in tax-free, and investment gains are deferred until you take withdrawals (meaning, you don't pay taxes the year you make those gains -- you put those taxes off until you start withdrawing the money in retirement). Meanwhile, Roth IRA contributions are taxable, but then investment gains are tax-free, as are withdrawals.

And speaking of investment gains, you might grow your money a lot more by investing it in stocks and other assets in an IRA than just leaving it to collect interest in a savings account. And you'll be apt to appreciate that extra money once your career comes to an end and you're no longer bringing home a paycheck from a job.

But there may come a point when you decide to stop putting money into your IRA. Maybe you've had to hit pause on contributions due to inflation. Or maybe you're trying to buy a house, so you're putting all of your money toward a down payment until that happens.

It's not so unusual to stop contributing to an IRA for a limited period of time. But if you stop funding your account altogether, you could end up very unhappy once retirement rolls around.

Don't set yourself up to struggle in retirement

Many people become extremely reliant on their retirement savings once their careers end. But if you stop contributing to your IRA midway through your career, you might end up with a nest egg that falls short of meeting your needs.

Let's say you've been steadily funding your IRA to the tune of $300 a month and have saved $50,000 by age 40. The stock market has, over the past 50 years, delivered an average annual 10% return (before inflation), as measured by the performance of the S&P 500 index.

If you were to leave your $50,000 balance invested through age 65 at 10%, you'd grow it into about $542,000. And that's a nice amount of money.

On the other hand, let's say you were to continue putting $300 a month into your IRA, while generating that same 10% average yearly return. By age 65, you'd have about $896,000. That's an extra $354,000 to spend during retirement.

And remember, for some people, retirement could end up lasting 25 years or longer. So having that extra money could spell the difference between being able to live comfortably throughout your senior years or having to worry about covering your bills.

Make your IRA a priority

It's okay to scale back or even completely stop your IRA contributions to deal with a short-term crisis or need, such as the loss of a job or an expensive home renovation you need to pump money into. But as a general rule, it's a good idea to keep funding your IRA year after year.

You may be tempted to stop contributing to that account if you've managed to accumulate a nice balance by a certain age. But there's really no such thing as having too much retirement income, so the more money you're able to put into your IRA, the better.