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My sister examined her Roth IRA today and noticed that she only contributed $4500 in 2012, out of the maximum $5000. When making a deposit, Vanguard gives her the option of depositing money "for 2012" or "for 2013," up to the respective maximums for each year.

Apart from the ability to contribute more to her Roth IRA overall (because she can max out the contribution in a calendar year that has already ended), what other benefits will she receive if she selects 2012 instead of 2013?

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If she selects 2012 and contributes $500, she will have contributed the maximum allowable amount for 2012, and has the option of contributing the maximum amount for 2013 as well (if she chooses to do so). If she does not max out her contribution for 2012 by April 15, 2013, that opportunity is lost, though she continues to have the option of contributing the maximum amount for 2013. Whether contributing the maximum allowable amount to a Roth IRA is a good thing or bad thing is something about which unreasonable people might differ.

Edit: @JBKing's answer makes a very good point that I will elaborate on and incorporate into this answer. Eligibility to make a contribution for 2012 is presumably a given at this point (there is at least $5000 in earned income and AGI is not too large (see Pub 950 for details)), but eligibility to make a contribution for 2013 is as yet undetermined. If the 2013 AGI turns out to be more than the limit so that the OP's sister cannot contribute to a Roth IRA for 2013, that contribution for 2013 made today will have to be withdrawn or re-characterized as a non-deductible contribution to a Traditional IRA for 2013. To the best of my knowledge, it will not be possible to re-characterize it as a Roth IRA contribution for 2012 at that point in time. So the opportunity to add $500 to the Roth IRA will be irretrievably lost. As JoeTaxpayer says, why not keep options open by making a full contribution for 2012 while the opportunity is there? In this sense, I think there is a downside to choosing 2013 instead of 2012 for that $500 contribution.

  • So there aren't any other benefits? – John Bensin Mar 15 '13 at 20:23
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    John - there's no benefit to deposit that $500 at '13. Why not keep options open to make a full deposit this year too? – JoeTaxpayer Mar 15 '13 at 22:03
  • @JoeTaxpayer Good point. I was planning to recommend to her that she contribute it for 2012, but I wanted to make sure there were no implications that I was unaware of. – John Bensin Mar 16 '13 at 13:25
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    To be clear - A tax deductible traditional IRA may have differences, it depends on the rest of her situation for the year. e.g. her tax bracket may not be the same, 2012 may save her 15% vs 25% this year for example. But the Roth is post tax money, so the choice has no impact so long as it's an allowed deposit as others pointed out. – JoeTaxpayer Mar 16 '13 at 14:57
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The only caveat I'd give is that I'd be sure of eligibility to make those contributions.

The IRS article Amount of Roth IRA Contributions That You Can Make for 2012 has a chart for AGI limits for specific years.

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