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IRA Insights: Are investors subjecting themselves to the "procrastination penalty"?

March 07, 2014

Nearly four out of every ten U.S. households own an IRA, holding more than $5.7 trillion in these accounts, according to a 2013 study by the Investment Company Institute. Because of the significant role they play in retirement savings, researchers from Vanguard's Investment Strategy Group set out to understand Vanguard investors' behavior when it came to IRAs. Are they saving effectively? Investing prudently for their futures?

Our researchers are sharing their findings in a new series called IRA Insights. The latest installment appears below, or you can download a copy.PDF

Many IRA investors wait until the last minute to make contributions. When making a contribution, IRA investors have a window that opens on January 1 of the tax year and closes on the following year's April tax-filing deadline. More than double the amount of contributions are made at the last minute than at the first opportunity.

Vanguard IRA contributions by month (tax years 2007–2012):

Vanguard IRA contributions by month (tax years 2007-2012)

Source: Vanguard.

Procrastination has a cost. Missing out on a year's worth of tax-advantaged compounding is like paying a "procrastination penalty." As shown in the hypothetical example at right, over 30 years, a "last-minute" investor could wind up with $15,500 less than an "early bird" investor, even assuming the same contributions and investment returns.

"Procrastination penalty" over time ($165,000 contribution over 30 years):

Procrastination penalty over time

Source: Vanguard.

Notes: This hypothetical example is provided for the purposes of illustration only. All figures are in today's dollars. "Early bird" contributes January 1 of the tax year; "Last minute" contributes April 1 of the following year. Figure assumes each investor contributes $5,500 for 30 years and earns 4% annually after inflation. Projected balances are as of April of the ending year, when the procrastinating investor makes the final contribution.

Investors who make multiple contributions are less likely to run up against the contribution deadline. Ideally, investors should make their annual IRA contributions as soon as possible. Another way to reduce procrastination is to set up automatic investments, which makes it easy to contribute regularly.

Vanguard IRA contributions by month (tax years 2007–2012):

Vanguard IRA single and multiple contributions by month (tax years 2007–2012)

Source: Vanguard.


  • The above hypothetical example does not represent the return on any particular investment.
  • All investing is subject to risk, including the possible loss of the money you invest.
  • When taking withdrawals from an IRA before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.
  • We recommend that you consult a tax or financial advisor about your individual situation.
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