Building a million-dollar retirement might not be easy, but more and more people are crossing the million-dollar mark every year, proving that it's possible. In fact, Fidelity noted that as of the end of 2023, a record number of people -- 391,562 -- had balances of a million or more in their IRAs. This is impressive given that the traditional and Roth IRA contribution limits are lower than those of other retirement accounts, yet people have still managed to use IRAs to achieve their goals.
If you're looking for the blueprint for Roth IRA success, we've put together a few secrets for you to check out.
Image Source: Getty Image.
1. Maximize annual contributions
Every year, you can stash away a certain amount of money into a Roth IRA. If you miss your window of opportunity to contribute, you can't make up for it later. So, if you qualify to contribute to a Roth IRA and it makes sense for your retirement plan, you might not want to drag your feet. The more money you contribute, the more you'll have to invest. It's even better if you can contribute the maximum amount every year.
For example, in 2024, you can contribute $7,000 to a Roth IRA if you are single and your modified adjusted gross income is under $146,000. The contribution limit increases to $8,000 if you are 50 and older. Since contributions are made with after-tax dollars, you are essentially paying your tax bill in the current year, allowing you to enjoy tax-free income during retirement. If you contribute $7,000 annually for 30 years, you would have made $210,000 in contributions that can be invested and grow tax-free over time.
The great thing about Roth IRAs is that anyone with earned income can contribute, whether they're 8 years old or 80 years old. If your child is making money from a summer internship, you can open a custodial IRA and manage the account until they are eligible to do so. By helping them maximize contributions now, you could put them on track for a million-dollar Roth IRA before retirement.
2. Live within your means
Contributing $7,000 a year to a Roth IRA can be a lot of money, especially if you're just starting out and don't have much left over after paying your bills. But if you want to slam dunk your Roth IRA goals, you'll have to pick up this common millionaire trait: living below your means.
Cutting expenses can be a touchy subject because living on a bare-bones budget is not ideal for everyone. Instead, try negotiating bills, searching for discounts, and avoiding frivolous spending. You can also boost your income if needed, but be careful not to let lifestyle creep get the best of you.
The goal is to put yourself in a position that makes it easy to contribute the maximum amount to a Roth IRA every year. Once you have your finances together, you can set up recurring weekly or monthly contributions to your Roth IRA without the fear of overdrawing your account.
3. Make smart investment decisions
Although you'll need to invest your money to help you reach the million-dollar mark, you don't need to chase after the hottest stocks to achieve your goal. Do your research and invest in a diversified portfolio of assets that align with your goals and risk tolerance. You can consider individual stocks, exchange-traded funds, and index funds.
Let's assume the S&P 500 continues to earn roughly 10% per year as it has over the past several decades and you invest $7,000 annually. Here's how your money could grow over the next three decades:
|
Growing at 10% For |
$7,000 Invested Annually |
|---|---|
|
10 years |
$122,718 |
|
20 years |
$441,017 |
|
30 years |
$1,266,604 |
Data source: Author.
Amassing a million dollars in a Roth IRA is a big deal because all of it is tax-free after you turn 59 1/2 and meet the requirements of the five-year rule. If you're willing to be consistent and stick to a proven game plan for success, you'll be one step closer to joining the ranks of Roth IRA millionaires.
