When it comes to investing, front loading is the way to go if you have the financial bandwidth. It’s the beginning of June and I’m only $200 away from maxing out my Roth IRA! For some who are used to spreading financial goals evenly throughout a time period, this may seem odd. I decided to front load because it made sense with my current financial goals.
My Roth IRA Contribution Plan
My original plan was to contribute $500/month to my IRA so that I could max it out by the end of the year. I figured this way I could also focus on saving money for other goals like vacations, seasonal gifts, and business expenses.
After reconsidering this plan, I realized that front loading my Roth IRA contributions made a lot more sense for my goals rather than trying to spread it out. My highest priority goal right now is to invest. Putting all that money towards savings didn’t make sense for me. It made a lot more sense to focus on investing as much as I could in the beginning of the year and then catch up with saving near the end especially since most of my savings goals are pretty far out.
For the past couple months, I’ve been putting $2,000+ into the Roth especially since I’ve been getting income boosts from the stimulus checks (which were all paid out to me in 2021 due to my tax situation). Currently, I am only $200 away from maxing it out.
What is Front Loading?
Front loading is simply contributing to an annually capped account more heavily in the beginning of the year as opposed to spreading out the contributions. It is a good strategy for getting your money into the market and working for you faster than if you were to contribute in evenly spaced increments.
Why Should You Front Load?
Investing Earlier is Better When you invest, your money grows over time. The faster you put your money in, the longer it has to grow. This can have huge implications over time. Front loading can help ensure you have the maximum amount of time in the market possible.
Focus on Your Priority If your main financial priority is to invest, front loading your annually capped accounts can help you focus on this goal. Once you’ve completed the goal, it can be easier to focus on others later on.
When Should You Front Load?
Even though front loading is a great strategy, it doesn’t work for everyone all the time. There are a few reasons that you should front load and some signs that it may not be a good idea.
Consider Front Loading If. . .
- Investing is your main financial goal.
- You find yourself with extra money at the end of the month that you’re not sure what to do with. This could be because you are consistently under budget or you’ve recently increased your income.
- Your savings goals are far out and you don’t feel pressure to meet them any time soon.
Front Loading May Not Be A Good Idea If. . .
- You have high priority financial goals like paying off debt or saving for something urgent.
- You don’t have any wiggle room in your budget and you’re barely meeting your current contributions.
In sum, front loading is a great way to re-allocate areas of your budget if you find you have some wiggle room at the end of the month or you have noticed that your current budget is not in line with your priorities.
When I max my IRA out later this month, I’ll be able to sit back, relax and see my money grow for six extra months than I would’ve had I decided to evenly space my distributions.
As always, personal finance, is personal, so do your own research and make your own decisions before implementing this strategy.
Originally published at https://www.twocentswithjulia.com on June 10, 2021.
