The IRS on Thursday announced updates to its tax rules for tax year 2026, including new limits on contributions to individual retirement accounts.
You can now contribute up to $7,500 to traditional and Roth IRAs, an increase of $500 over the 2025 limit. Savers age 50 and older can stash away an additional $1,100 a year in the form of catch-up contributions. This increases from $1,000 in 2025.
If you’re looking to get the most out of your IRA in 2026, most financial advisors will tell you there’s no wrong way to do it. Investing as much as possible in tax-advantaged accounts is almost always considered a win.
But is there a best way to do that? Let’s say you get a big bonus in December and have all $7,500 in savings. Is it better to invest the entire amount as soon as the market opens in January or fund your account throughout the year?
Experts say it all depends on the situation.
Lump-sum investment is advantageous in mathematics
All things being equal, “I’d want to put the money in as soon as possible,” says MaryAnn Gucciardi, a certified financial planner with WealthMind Financial Planning. “Most people don’t have the cash flow to do it. But if you have the money, do it and grow it.”
Guccildi’s preference for investing as much as possible as quickly as possible is rooted in some simple market mathematics.
Consider two investors. One person invests $1,200 at the beginning of the year, and the other invests $100 each month. If the market rises steadily over that period, the original investors will be ahead of the curve. Because she can enjoy the maximum benefits to the fullest.
If the market falls, the second investor wins and steadily buys at lower prices without exposing the bystander’s funds to losses.
No one knows how the market will behave in the short term. Over the long term, the stock market has been trending upward, making lump-sum investments slightly more advantageous.
Analysts at Morgan Stanley Wealth Management analyzed 1,000 overlapping seven-year historical periods and found that in more than 56% of cases, a lump sum investment approach produced higher returns than a periodic investment strategy.
But dollar-cost averaging may still be right for you
If you have the money, you can just max out next year’s account every January, right?
Well, not necessarily.
Financial professionals often prefer regular investing, also known as dollar-cost averaging, for two reasons. For one thing, it’s easy. If you invest in your 401(k) through regular payroll deductions, you’re already invested. Second, it helps take the emotion out of investing.
If you’re investing a lump sum in the market with the hope of maximizing your profits, you’ll probably find that the market looks a little volatile in January. Your funds can sit indefinitely while you wait for the best time to invest. Dollar-cost averaging helps eliminate the urge to time the market.
“At the end of the day, we all need to be comfortable with our decisions because no one can predict what the market will be like next year,” said Sean Pearson, CFP at Ameriprise Financial Services. “Dollar-cost averaging is a good, safe and proven method.”
Even if you have the funds to make a lump sum investment, even if it’s not the best investment strategy, you may want to continue making small monthly contributions to your retirement account while using your cash to pursue other, more pressing financial goals, he says.
“Sometimes the answer is math,” Pearson says. “But most of the time, the answer is to look at your calendar and think about how it all fits into your financial planning timeline.”
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