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Do you have to max out your IRA early in 2022? Right here’s what advisors say

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If you want to save more, you can exhaust the contributions to the individual retirement account 2022 early instead of waiting until the 2023 submission date.

However, opinions have been mixed about investing in lump sums versus distributing deposits at set intervals called the averaging of the dollar cost.

The 2022 IRA contribution limits are the lower of $ 6,000 or your taxable income for the year, with an additional $ 1,000 for investors 50 and older.

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“I say go ahead and put it in,” said Sallie Mullins Thompson, a Washington-based certified financial planner and certified accountant with the firm by her name. “Otherwise they could spend it on something else.”

Additionally, investing the money now offers more time for compound returns, Mullins Thompson said, and there is faster tax-free growth when you contribute to a Roth IRA.

“You want to do this asap,” she said.

According to a study by Northwestern Mutual Wealth Management, flat investments can outperform the dollar-cost average when the stock market moves higher.

The study looked at rolling 10-year returns of $ 1 million invested immediately from 1950, which exceeded the funds allocated over time.

However, some experts prefer dollar cost averaging to reduce downside risk, especially for disciplined savers.

Through [investing] On a monthly basis, you buy when the markets are high or low so you get a better average price over the year.

Jay Spector

Partner at Barton Spector Wealth Strategies

“You want the apple to be bite-sized,” said Jay Spector, CFP and partner at Barton Spector Wealth Strategies in Scottsdale, Ariz., Explaining how many investors choose IRA deposits year round.

“Through [investing] On a monthly basis, you buy when the markets are high or low so you get a better average price over the year. “

For example, if you contributed $ 6,000 or $ 7,000 in February 2020, the value could have fallen 20% or 30% by the start of the pandemic in March 2020, he said.

However, if you split the money between February, March, and April 2020, you might have had a “better average overall experience” entering the market, Spector explained.

Of course, investing now or incrementally can pay off when it comes to planning long-term goals.

“We’re talking about people who are saving money for their future,” he said. “Really, there is no wrong answer.”

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