A sneaky way of adding to your Roth IRA contributions

Form 1040 U.S. Individual Income Tax Return. Blank from Internal Revenue Service (IRS). https://www.irs.gov/pub/irs-pdf/f1040.pdf

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Tax season is once again upon us for those who live in the U.S. The 2024 filing deadline for individuals is Tuesday, April 15 2025 (IRS, 2025). Here's a habit and strategy to help bolster your Roth Individual Retirement Account (IRA). "Roth IRAs are a popular way to save for retirement due to their tax advantages and lack of (required minimum distributions) RMDs" (Connett, 2024).

In 2024, "almost half of Americans expecting a tax refund will either put that money toward a savings account or debt repayment" (Kelton, 2024). Those are very good approaches e.g., to help create or add a chunk to a starter emergency fund of $1,000, pay down high interest credit card debt, or simply help with the rent or mortgage. But what if you invested your tax refund? From the Bankrate survey in 2024, only 9% expected to invest it (Kelton, 2024). You can break away from the norm and invest the refund. Here are 5 more ideas to invest your tax refund (Goldberg, 2024).

Let's say you have a short term goal such as 'By April 15th, 2025, I fully fund and invest my Roth IRA 2025 allocation'. For "Tax Year 2024: Single filers earning less than $146,000 and joint filers earning less than $230,000 can make a full Roth IRA contribution in 2024", which is $7,000 of post-tax contributions (Sham, 2025). To help fund this short-term goal of allocating $7,000, part or all of the tax refund could be used! For example, in 2024 you made a monthly deposit of $500 to your Roth IRA account. By the end of Dec., you would have put in $6,000 for the 2024 allocation. Assuming you filed your 2024 taxes and have already received the average (as of Feb. 14th, 2025) tax refund check of $2,169 (Picchi, 2025), you could then use $1,000 of your approximate $2,000 refund to top up your Roth IRA 2024 allocation. Now you've allocated the full amount of $7,000 for the 2024 period. Based on your refund and circumstances, you could allocate all of the refund or part of it for the Roth IRA contribution for this year.

A pro tip for this strategy is to have your refund go directly to a brokerage account, which can transfer funds to your Roth IRA. If you E-File your taxes, the refund once received in your brokerage account, can be transferred almost immediately to the Roth IRA account. For example, on ETrade, you can check how much you have contributed to the current year's Roth IRA allocation. When you transfer funds from the brokerage to the Roth IRA, you can see how much more is left for this year's Roth IRA allocation to reach the total contribution of $7,000.

With this strategy at least presently, "You can contribute to a Roth IRA after filing your taxes, and you don’t need to amend your return" (Segal, 2024). As highlighted by the IRS, "Contributions to a Roth IRA aren't deductible (and you don't report the contributions on your tax return)" (IRS, updated 28-Oct-2024). Once you contribute money into your Roth IRA for the current year, remember you need to invest it. Like Erica Kullberg mentions, 'If you simply deposit the money, your money won't grow and "it will sit in a low-growth account" (Kulberg, 2025). This mistake can cost thousands and thousands of dollars if not addressed during the years of contribution.

What are some of the benefits of topping up (or even starting your Roth IRA account) with your tax refund? Here are a few:

• You didn't have the refund money all year to use. So you won't 'miss it' if the refund goes towards your Roth IRA. You effectively snuck money into the Roth IRA contribution. Without having to save or try harder.

• You don't need the refund immediately, and can invest it and wait for the long-term.

• You are maxing out the Roth IRA allocation, or starting the account with this year's tax refund.

• Ensures you don't spend the refund. For example, in a 2025 survey by Tax Slayer of 2,000 U.S. taxpayers, 12% of the men and 6% of the women surveyed planned to "splurge on luxuries" (TaxSlayer, 2025). That doesn't need to be you!

• "You have a full 15 months to contribute to your Roth IRA each year" (Segal, 2024). Even though the tax year is 12 months, you have 15 months currently to contribute to a Roth IRA account for the tax year.

  
  

Of course you should determine if this approach would be suited. Perhaps you're in a crunch, and paying off a credit card with the refund works better for you. That is a guaranteed return, rather than a potential future return with the Roth IRA. As Mark Cuban highlights, "Your credit card, you know what your return is. If you pay 15 or 20 percent interest, and pay that down … you just earned 15 or 20 percent" (Haden, 2024). This is exactly the strategy we used last year, and will help top up the 2024 contribution too. Let us know if you find this sneaky way of adding money to your Roth IRA working for you, and what you invest your allocation in.

To your success.