3 Reasons to Max Out Your IRA -- Even if Retirement Is Years Away

It pays to pump as much money as you can into an IRA.

When I first graduated college and started working full time, saving for retirement was hardly a priority. Back then, my goals were to pay off the debt I'd incurred in the course of getting my degree and build myself a solid emergency fund.

But by the time my 30s rolled around, I got in the habit of pumping money into a retirement plan on a consistent basis. And if anything, I actually regret not saving more for retirement during my 20s.

If you're many years away from retirement, you may not be so motivated to max out or even fund an IRA. But here's why you may want to start maxing out early in life -- or getting as close as possible.

1. You get a tax break

The money you contribute to a traditional IRA goes in on a pre-tax basis. What this means is that putting $6,000 into an IRA (the maximum annual contribution for workers under age 50) exempts $6,000 of your earnings from taxes. That's a nice benefit.

Plus, when you invest money in your IRA, you don't get taxed on gains in that account every year. Rather, those taxes are deferred until you're ready to start taking withdrawals in retirement.

2. You get more time to grow your money

When it comes to building a lot of wealth for retirement, the most important thing you can do is give yourself plenty of time to benefit from the power of compounded returns. Let's say you contribute $6,000 to your IRA, and after a year, that balance grows to $6,300 due to savvy investments. At that point, you can reinvest your additional $300 for even more growth, thereby kicking off a very beneficial cycle.

Now, let's say you start saving $500 a month in your IRA starting at age 45 and continue doing so until age 65. If your investments deliver an average annual 7% return (which is below the stock market's average), you'll end up with about $246,000. But if you start saving that $500 a month at age 25, come age 65, you'll have almost $1.2 million, assuming that same return.

3. It puts less pressure on you to save later in life

A lot of people plan to catch up on retirement savings when they're older. The logic is that during their 20s and 30s, they may be saving for near-term goals, like buying a house, whereas in their 50s, they'll have more money to dedicate to an IRA. In fact, IRAs are designed to support catch-up efforts -- workers 50 and over can contribute a maximum of $7,000, as opposed to the $6,000 limit for those under 50.

But waiting until your 40s or 50s to max out your IRA puts a lot of pressure on you. What if your home starts needing expensive repairs at that time? What if you're trying to help put your kids through college? If you start maxing out your IRA sooner, you'll have more flexibility to cut back on contributions later in life if other unavoidable bills start to mount.

It's easy to see why IRA contributions might fall by the wayside when you're younger. But it pays to prioritize your IRA even if you can't even begin to imagine what retirement might look like.