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I opened an IRA account with vanguard on 1/02/2016 and put the max contribution and put in 5,500. Since then the value has dropped to 5,000. I haven't done my 2015 taxes yet, can I add more to the fund? Is it correct to wait to file your taxes until the last do so you can maximize your amount of tax sheltered money?

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When you opened and funded the account, did you tell Vanguard that you wanted your contribution to be for tax year 2015? – Ben Miller Jan 22 at 21:29
What if you bough stock on Jan 2, and it tripled? You'd have $16500. How would waiting have helped? – JoeTaxpayer Jan 22 at 23:18
up vote 11 down vote accepted

No, you can't.

The limits are contribution limits, not limits on the value of the investment. If you contributed $5,500 for 2015, you are done contributing for that tax year.

You are free to contribute another $5,500 for 2016.

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You can't directly contribute more. However, it seems that there is something you can do that can achieve a similar effect. You can withdraw your entire account (principal + earnings, though in your case that's less than the principal), and then contribute up to the $5500 contribution limit again. The end result is that you put in a net amount of $500, and the account ends up with $5500, which is what you want.

The first step is a return of contributions made for the contribution year before the tax filing deadline for that year. This kind of withdrawal is not subject to tax, and counts as if you never made the contribution at all. Since you are considered to have never made a contribution, you still have $5500 that you can contribute before you hit the limit.

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Interesting, do you have any reference for this strategy? Never heard this suggestion before. – JoeTaxpayer Jan 23 at 13:15
@JoeTaxpayer: It was mentioned in a previous Money StackExchange question:… But which part do you have doubts about? It is mentioned in various places in Publication 590 that you can withdraw contributions made during the year before the tax deadline tax-free and it will count as if you've never contributed, and also that excess contributions can be withdrawn before the deadline without incurring the excess penalty. I think those things combined support this strategy. – user102008 Jan 23 at 19:12
I see the other answer. It appears that OP can achieve the same result as he proposes by following your advice. I am a skeptic, in that when something appears too good to be true, it usually is. But, your answer seems correct. +1 – JoeTaxpayer Jan 23 at 20:07

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