Racking up a seven-figure Roth IRA (individual retirement account) may sound impossible if you're just getting started on your investing journey. But time, education, and consistency can work magic in your portfolio.
Are you ready to unlock the secret sauce to Roth IRA success in 2023? Here are a few tips to help you maximize your account potential.
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Don't underestimate the power of a Roth IRA
A Roth IRA can make your retirement years more rewarding. You can contribute after-tax dollars to your account now in exchange for tax-free dollars when you retire.
Let's say your Roth IRA reaches $1 million. After you turn 59 1/2 and have met the requirements of the five-year rule, you can withdraw all the money from your account without worrying about a tax bill.
The key to building a healthy Roth IRA is to start contributing money as early as you can. As soon as your income rises above the annual limit, you won't be able to make direct contributions to a Roth IRA.
The Roth IRA contribution limits are smaller than other retirement accounts, so you'll need to contribute as much as possible every year to get closer to the million-dollar mark. For 2023, you can contribute up to $6,500 to a Roth IRA if you're 49 and under. When you turn 50, you can contribute an extra $1,000 to your account.
Your million-dollar game plan
Accumulating $1 million in your Roth IRA isn't as hard as you may think but will require a little patience. If you start now, you can put yourself on the path to achieving your goals.
Let's look at two examples that show how you can reach $1 million at different ages and investment returns.
Example No. 1
- Age: 22
- Annual contribution: $6,500
- Investment rate of return: 8%
If you start contributing to your Roth IRA at age 22, you can have over $1 million in your account at 56. But let's say you're already in your 30s. You still have some time to achieve your goals in a decent amount of time.
For instance, if you're 36, you can still hit the million-dollar mark within the next three decades if you earn a higher rate of return on your investments.
Example No. 2
- Age: 36
- Annual contribution: $6,500
- Investment rate of return: 10%
At age 66, you can have over $1 million in your account. You could reach your goals sooner if you take advantage of the special catch-up contribution retirement savers unlock when they turn 50.
Although the above investment returns may sound attractive, market downturns could put a wrinkle in your plan. That's why having a long-term outlook is key to success. You'll need to set up a sustainable investment portfolio that won't break down when times are tough.
Make million-dollar Roth IRA moves today
As you can see, you'll need some time to accumulate a million-dollar Roth IRA. However, it's not a farfetched goal if you get started now. With a few special ingredients, you'll blink your eyes and notice that you have a million-dollar Roth IRA. Here are a few steps to get you closer to your goal:
- Contribute the maximum amount to a Roth IRA every year.
- Invest in high-quality assets that can boost your portfolio balance.
- Keep investing in your education so you can be ready for whatever comes your way.
- Consider a self-directed Roth IRA if you want access to alternative assets, like real estate, where you can potentially generate superior returns.
It's important that you don't neglect your other retirement accounts while working toward your million-dollar Roth IRA. If your job offers an employer-sponsored retirement plan, like a 401(k), check it out. If it makes sense for you to contribute money to a 401(k) every year, that can give you another retirement boost.
When you leave your job, you could convert your 401(k) funds to a Roth IRA. But you want to iron out the taxes first because converting money from a traditional 401(k) to a Roth IRA will trigger a taxable event
Get closer to your dream Roth IRA in 2023
A surefire way to set yourself up for Roth IRA success is to get started now. Learn how contributions work, create a game plan, and then take actions that will get you closer to your goal. Although you most likely won't see a million-dollar Roth IRA within a year, you'll have a better chance of being financially free for the rest of your life if you make strategic moves today.
