Can I Contribute to an IRA With a Credit Card?

You'll need a cash advance to contribute to an IRA using a credit card.

You'll need a cash advance to contribute to an IRA using a credit card.

If you're not squirreling away a chunk of each paycheck into a retirement account, you're not alone: About 49 percent of Americans didn't contribute to a retirement plan, as of 2012, according to CNNMoney. If you're one of this half of the population, you may flirt with the idea of using a credit card to pay for IRA contributions. It's possible in some cases, but it can be more foolhardy than not contributing at all.

Income Requirements

To put money into an individual retirement account, you must have earned income sometime during the year. If you're turning to plastic to fund your nest egg because you were unemployed all year, you're out of luck. In addition, the Internal Revenue Service won't allow you to sock away more money than you earned, so if you made $2,000 this year, you can't max out your contribution with a $5,500 payment from your credit card -- or from any other source, for that matter.

Cash Contribution Rules

Unless you're performing a rollover from another retirement account like a 401(k) to your IRA, the IRS only allows you to use cold, hard cash when building your nest egg. Because of this, you can't directly use your credit card to finance an IRA. If your card allows you to take cash advances, you can skate around this obstacle by placing the cash in a checking account or brokerage fund and kicking the money into your retirement account from there.

Cost of Contribution

While it may be possible to use a cash advance from your credit card to fund an IRA, you may end up shooting yourself in the foot. On average, credit card companies charge an annual rate of 13 percent as of 2013, according to You'll need to find an investment with higher returns than your card's rate, which may be a challenge. For example, even with the stock market rallying in early 2013, it had only posted a gain of 10.6 percent as of April.

Short-Term Use

The difference between a card's rates and an IRA's return usually make turning to plastic to pay for retirement a silly idea. But if you're in a pinch as the contribution deadline looms, it might make sense -- if you plan to pay off your charge card's bill soon. Let's say you don't have enough cash on hand to reach your maximum yearly contribution as the April 15 deadline approaches. You're expecting a big bonus check in a few weeks that would be a perfect addition to your nest egg. You could use your credit card so you don't miss your opportunity to add to your IRA for the year. When you receive your bonus, you could pay back the advance, only at the cost of a few months' interest.


About the Author

Wilhelm Schnotz has worked as a freelance writer since 1998, covering arts and entertainment, culture and financial stories for a variety of consumer publications. His work has appeared in dozens of print titles, including "TV Guide" and "The Dallas Observer." Schnotz holds a Bachelor of Arts in journalism from Colorado State University.

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