Umrah in Ramadan brings a great reward, which is the reward of Hajj.
It was narrated from Ibn Abbaas (may Allah be pleased with him) that the Messenger of Allah (blessings and peace of Allah be upon him) said to a woman of the Ansaar: What kept you from performing Hajj with us? She said: We only have two camels and the father of her son and her son had gone for Hajj on one camel, and he left us the other camel so that we could carry water on it. He said: When Ramadaan comes, go for Umrah, for Umrah in (that month) is equivalent to Hajj.
Narrated by al-Bukhaari (1782) and Muslim (1256).
In order for the Muslim to attain that great reward, he has to enter ihram for umrah and perform the rituals in the month of Ramadan. He cannot enter ihram for it on the last day of Sha'baan, even if he performs its rituals in Ramadan, and he cannot enter ihram for it in Ramadan and perform the rituals in Shawwaal.
There are two ways of performing umrah that do not bring the reward of Hajj:
1 - Entering ihram for umrah at the end of the month of Sha'baan and performing the rituals after the month of Ramadan begins.
2 - Entering ihram for umrah before the sun sets on the last day of Ramadan and performing the rituals on the night before Eid.
Shaykh Muhammad ibn Saalih al-Uthaymeen (may Allah have mercy on him) said:
For the person who does umrah in Ramadan it is essential that his umrah -- from entering ihram until the end of it -- should be in Ramadan. Based on that, let us look at another example:
If a man reaches the miqaat in the last hour of Sha'baan and enters ihram for umrah, then the sun sets and Ramadan begins with the setting of the sun, then he comes to Makkah and does tawaaf and saa'i and cuts his hair, can it be said that he did umrah in Ramadan?
The answer is: No, because he started his umrah before the month of Ramadan began.
A third example: A man entered ihram for umrah before the sun set on the last day of Ramadan, and he did tawaaf and saa'i for umrah on the night before Eid. Can it be said that he did umrah in Ramadan?
The answer is: No, because he did not do Umrah in Ramadan, as part of his umrah was done outside of Ramadan. Umrah in Ramadan is that which lasts from the start of ihram to the end (in Ramadan). End quote.
Majmoo' Fataawa al-Shaykh al-Uthaymeen, 21/352, 353
And Allah knows best.
Reproduced from Islam QA