We’ll start with the easy answer: the best time to make your annual Roth IRA contribution is whenever is most feasible for you. If you can’t make a contribution at all, that’s fine too. However, I would suggest considering a way to do so even if you’re saddled with debt or living paycheck to paycheck. Easier said than done—trust me, I know—but one of my bigger money regrets is not contributing the max contribution throughout my adult life.

In 2022, that maximum contribution amount for single filers is $6,500. Again, if you can’t reach that contribution, just do your best. But for the sake of this post, we’re going to assume that we’re plugging the max into the Roth IRA at some point during the calendar year. Question is, at what point during the year should you make those contributions? Should you front load your

Dollar cost average on a monthly basis

For most, the answer will be to dollar cost average these payments throughout the course of the year. This is a great option because you can automate the process with a relatively small monthly payment of $500 and never think twice about it. For emotional purposes, this allows you to ignore the ups and downs of the stock market, assuming you are investing for the long term. Whether the market is up or down has no bearing on whether or not you’ll make your automatic payment. Set it and forget it. And when the market does go down, as it inevitably will, you can revel in the discounted share prices you are able to purchase.

Front load the entire contribution on January 2

There is a strong argument to be made for front loading your investments if at all possible. Mad Fientist makes that argument succinctly in his post on front loading his 401k:

The S&P 500 has risen over 9.5% annually, on average, since 1928.

While it hasn’t been a steady march higher, the overwhelming trend is upwards so it is reasonable to assume that investing earlier in the year is better than investing later, since you’re more likely to capture a bigger piece of that upward movement. This is one of the main reasons dollar-cost averaging is considered a suboptimal strategy for investing lump sums.

Since the market does tend to go up over time, it figures that the more time you are in the market, the more gains you will reap. This is, of course, an annual average return, so outliers will occur. While the market is ultimately up in 2020, that was very much not the case back in March. For those who front loaded their Roth IRA contributions in 2020 like myself, you couldn’t help but kick yourself for investing a lump sum right before a downturn. Not only were you experiencing a negative return on the months old investment, but it came with an opportunity cost of not being able to make that contribution when things went south.

Generally speaking, timing the market is a fool’s errand. But investor psychology counts for something. I’m scarred enough by the experience of 2020 that I may go back to dollar cost averaging as I had done in the past.

Back load the entire contribution on December 31

Not sure what your adjusted gross income (AGI) is going to look like in a particular year? If you’re close to the income limit—$124,000 for a single filer in 2020—you may want to wait it out to be sure you aren’t contributing more than the IRS allows. This would be the route to take if you have a high salary with a bonus structure that may put you over the income limit. Or if your income is largely commission-based and thus largely uncertain until year’s end.

An easy way to cut down that AGI is by contributing to your 401k, up to the maximum of $19,500—none of which will count toward your income figure that year as it is tax-deferred income. The solution to saving more in tax-advantaged accounts is to save more in tax-advantaged accounts. In this case, the rich get richer, indeed. As long as you aren’t too rich!

Back load the entire contribution on April 15 of the following year

If for some reason a Roth IRA contribution completely slips your mind, you’re in luck. You have until April 15 of the following year to make your annual contribution. I can’t envision a scenario in which this would be the optimal strategy, but it’s great for anyone who isn’t totally on top of their finances. As we mentioned, the more time in the market, the better. Nonetheless, procrastinators get a four-and-a-half-month reprieve for their Roth IRA.

Maybe you simply couldn’t allocate the necessary funds the previous year and have since come into a steadier income or inheritance or lottery winnings to begin the new year. Whatever the case, it’s worth pointing out that the Roth IRA contribution deadline isn’t until your taxes for that particular year come due.

Conclusions

As stated off the bat, it’s not a one-size-fits-all answer. Whatever works best for you and will ensure that you are making regular contributions is the key.

That said, the easiest answer to when to make your Roth IRA contribution is going to be to dollar cost average. You remove yourself from the emotional highs and lows of investing while making a somewhat painless monthly payment to yourself.

The historically optimal strategy, though, will be to front load at the earliest opportunity. Just as you can automate your monthly $500 contribution, you can automate an annual $6,000 contribution on January 2. Either way, automation is the common thread. Set it once (adjusting annually in accordance with the IRS limits), and you’ll be thankful you did.