For both the 2021 and 2022 tax years, investors under age 50 may invest up to $6,000 (or the lesser of your taxable compensation) in their traditional and Roth IRAs combined. Many Vanguard investors fail to invest the maximum, and over a 30-year savings horizon, this can mean lost savings in the tens of thousands of dollars. 2021 IRA contributions can be made until April 18, 2022.*

For the 2021 and 2022 tax years, IRA owners age 50 or older can make a catch-up contribution of up to $1,000 more, for a total maximum of $7,000 per person. So, a married couple who are both over 50 and eligible to contribute could make a combined contribution of $14,000.

Many investors, instead of making their IRA contributions at the start of a tax year, don’t make them until 15 months later, during the last two weeks before that tax year’s filing deadline. Investing early in the tax year means the compounding clock starts sooner, Bruno said. “Over the course of your working years, the procrastination ‘penalty’ can really add up,” she said. “So if you fall in this camp, see if you can make a change this year and make your 2022 IRA contribution now.”

Investors might consider making a double contribution. If they haven’t yet made a 2021 IRA contribution, they could make both their 2021 and 2022 contributions now. It might be surprising that the timing of IRA contributions matters, but the compounded effect of early contributions can make a significant difference over the long run.

Take the example of two investors who both contribute $6,000 a year to their IRAs. Investor A makes her contribution on January 1 of each year; Investor B does so on April 1 of the following year. Just by contributing earlier, Investor A could potentially end up with almost $17,000 more than Investor B, based on the hypothetical illustration below. 

Investors should consider using part or all of any tax refund to make an IRA contribution. For most people, a tax refund check is money they haven’t budgeted for. Because it’s essentially “found money” and not needed to pay bills or living expenses, it’s a relatively painless way to fund an IRA. The IRS even makes it easy by allowing taxpayers to have some or all of their tax refund sent directly to their IRA custodian. In fact, early filers this year can get their refunds and then make a contribution by April 18.

We often see last-minute filers park their IRA contribution in a money market account until they can go back later to invest it. The problem is that many don’t go back. We recommend instead that you select a balanced fund or target-date fund for your IRA. The advantages of balanced funds are enduring—they’re low-cost, diversified, and professionally managed—and they provide for growth potential that a money market doesn’t, making them an appropriate long-term retirement investment.

These tips are simple and sound and can make tax season a little less daunting, Bruno said. “By following these five simple steps,” she said, “you can help put yourself on the right track for retirement—and maybe lower your tax bill as well.”