Maximizing IRA contributions is a proven way of taking advantage of tax benefits when saving toward retirement. For 2024, the limit for either a traditional or Roth IRA stands at $7,000, plus a $1,000 catch-up amount for contributors over the age of 50.

While not tax deductible, Roth account contributions accumulate without any taxes applied, with earnings tax-free as well. Contributions can be accessed at any time, with no penalty or taxes attached. Tax-deferred, contributions to traditional IRAs may be tax deductible, depending on Modified Adjusted Gross Income and employer plan coverage.

As a simple guideline, those who are on a career path to enter a higher tax bracket come retirement are best served by Roth contributions. Unlike Roth accounts, traditional IRAs stipulate that required minimum distributions (RMD), or mandatory withdrawals, begin by age 73. This can increase the tax burden, as RMD count fully as income.

Another important consideration is just what kinds of investments underlie IRA contributions. A majority of last-minute IRA contributions, made just before the April 15 deadline, are allocated to money market funds that have constrained earnings potential. More dynamic options with greater upward potential include low-cost index funds, target-date mutual funds, bond funds, and even holdings in individual stocks.