The Best Time Of Year To Start Investing

The best time of year to get started with investing is the beginning of the year between January and April. Why? It’s because the contribution period for my favorite type of retirement investment account, the IRA, overlaps.

The contribution period for an IRA starts on January 1st and lasts until the tax-return filing deadline the following year. That means between January and April, you have the ability to simultaneously contribute to an IRA for the previous year and the new year.

Right now, you still have the opportunity to max out a 2013 IRA with $5,500. You can also contribute the maximum for a 2014 IRA with $5,500 for the year. That means, you can potentially start investing with $11,000 all at once. There is absolutely no better way to get started in investing.

New Roth IRA Strategy

If you’re just getting started with investing, you should start with a Roth IRA. If you happen to have $11,000 saved up, I would start my account with a bang by contributing $5,500 for 2013 and $5,500 for 2014 all at once. Assuming you have no other investments, you absolutely cannot go wrong by investing all of it in a Vanguard Target Date Retirement Fund that is appropriate for your age. With an all-in-one fund that has low-costs, you never have to worry about re-balancing or asset allocation. It’s all taken care of for you.

What If I Make Too Much?

What if you make too much to contribute to a Roth IRA? If you don’t have an existing Traditional IRA or a Roth IRA and are just getting started, here’s what I would do. See my Backdoor Roth IRA Guide for more information.

• Open a Traditional IRA
  • Fund the Traditional IRA for 2013 in the amount of $5,500.
  • Fund the Traditional IRA for 2014 in the amount of $5,500.
• Open a Roth IRA
  • Transfer/convert the $11,000 from the Traditional IRA to the Roth IRA immediately.
  • Purchase Target Date Fund

What If I Don’t Make Enough?

OK, most of us don’t have $11,000 to contribute to a Roth IRA all at once. That’s completely understandable and not at all uncommon. Here’s what I would do if I was just getting started and didn’t have enough money to max out my IRA all at once (assuming you are qualified to contribute directly to a Roth IRA).

• Open A Roth IRA
  • Since you have until April 15, 2014 to fund a 2013 IRA, all your contributions should go towards the 2013 contribution limit.
  • Try to fund at least $1,000 (the investment minimum) and purchase a Target Date Fund.
• After April 15, 2014, all your contributions should be going towards the 2014 contribution limit.
  • Make any contributions you can afford the rest of the year through automatic monthly withdrawals, or just deposit more money whenever you can.

What About Next Year?

I prefer lump-sum investing at the beginning of the year. That way, I only have to manage my Roth IRA one time and don’t have to worry about it during the rest of the year. Here’s what I would do to get ready for next year.

• Save a monthly amount in anticipation of investing a lump-sum at the beginning of 2015.
• The IRS adjusts retirement account contribution limits based on cost-of-living increases. I would anticipate that the 2015 IRA regular contribution limit will remain at $5,500 or increase up to $6,500. Add an additional $1,000 if you are age 50 or older and qualify for catch-up contributions.