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AAII members who postpone making contributions to their individual retirement accounts IRAs until April are not alone. Statistics compiled by Vanguard show more than 20% of IRA contributions for the 2007 through 2012 tax years occurred in April.

Put another way, Vanguard says its clients make “more than double the amount of IRA contributions in April of the following tax year than in January of the current one.” April also far exceeds March, which ranks second in total monthly contributions made.

Though making IRA contributions in April is a common occurrence, it is not a smart one from the standpoint of long-term wealth. Rather, a “procrastination penalty” exists. Vanguard says this penalty can cause a 10% forfeiture in wealth.

The fund giant based the finding on a hypothetical portfolio. It assumed two investors contributed $5,500 to an IRA annually for 30 years. The “early bird” investor made the contributions on January 1 of each tax year. The “last minute” investor made the contributions on April 1 of the following year. Both investors realized an annualized return of 4% after inflation.

The early bird investor ended up with $158,967 in accumulated wealth. The last minute investor, conversely, ended up with $143,467, or $15,500 less than the early bid investor. The only difference was the timing of their contributions.

The findings are similar to a T. Rowe Price study published last year (see “Which IRA Should You Contribute to and When?” in the July 2014 AAII Journal). This study found that making lump-sum contributions at the beginning of each year results in greater wealth than end-of-year contributions over rolling three-, five- and 10-year periods.

A good compromise between making contributions at the start of each tax year and waiting until April 15 of the following year (the deadline for making an IRA contribution for the previous tax year) is to set up automatic contributions. These ensure dollars are invested over a period of time, add discipline to the savings process and spread out the budget impact of making a contribution.

Source: “Delaying IRA Contributions Until April Can Cost You,” Stephen Weber, Vanguard, February 15, 2015.