The more you save and invest in a Roth IRA, the more likely you are to build up $1 million in savings.
For those just starting out, saving $1 million in a Roth IRA may seem unrealistic — after all, Roth IRA contribution limits were $6,000 in 2019 and are rising to $6,500 in 2023 and $7,000 in 2024 for people under age 50 — but thanks to the power of compound interest and consistency, even these relatively low contribution limits can get you into the millionaire club.
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Maximizing your Roth IRA contributions
Roth IRAs have been getting a lot of attention because they allow you to contribute after-tax amounts now instead of withdrawing them tax-free in retirement, meaning if you save $1 million in a Roth IRA, it will be 100% tax-free by the time you reach age 59 1/2 and have met the five-year rule.
To get your plan on track, you should contribute as much as you can to a Roth IRA if you’re eligible. For 2024, you can contribute up to $7,000 to an Individual Retirement Account (IRA) if you’re under 50, and up to $8,000 if you’re 50 or older. The deadline to contribute to a Roth IRA in 2024 is April 15, 2025, so you can use your year-end bonus or other windfall to help you reach your goal.
If maxing out your Roth IRA seems like a challenge this year, try these tips.
- Cut down on unnecessary expenses
- Contribute a small amount to a Roth IRA every week or month.
- Set up a recurring donation
- Put money into your Roth IRA from a side hustle, but make sure your income doesn’t exceed the limits.
The more you can contribute to a Roth IRA, the more likely you are to reach your $1 million retirement goal.
Make your contribution count
Although IRA contribution limits are relatively low compared to other accounts, it’s possible to build a $1 million IRA if you invest wisely. Unlike a 401(k), a Roth IRA gives you the flexibility to invest in any type of asset, including exchange-traded funds and individual stocks. If you’re looking to bolster your retirement portfolio with alternative investments, you might also consider a Self-Directed Roth IRA. But no matter what you invest in, it’s important to do your research and due diligence to ensure your investments are aligned with your goals.
Let’s say you’re 30 years old and meet the income requirements to contribute $7,000 to a Roth IRA in 2024. Assuming the market continues to compound at its historical long-term rate of return of roughly 10% per year, this amount could grow to roughly $197,000 by the time you turn 60. However, if you contribute $7,000 per year, it will take you just over 28 years to reach $1,000,000, assuming the same annual rate of return.
Essentially, to increase your chances of building a $1 million Roth IRA, you need to save and invest as much as you can each year. Because investment returns are not guaranteed and can vary widely from year to year, it’s important to maintain a long-term perspective.
The table below shows how your money could grow over time if you start investing this year.
|
10% growth |
$7,000 per year investment |
|---|---|
|
5 years |
$47,009 |
|
10 years |
$122,718 |
|
15 years |
$244,648 |
|
20 years |
$441,017 |
|
25 years |
$757,272 |
|
30 years |
$1,266,604 |
|
35 years |
$2,086,888 |
|
40 years |
$3,407,963 |
Data source: Author.
$1 million Roth IRA game plan for 2024
When you break down the numbers, building a $1 million Roth IRA is easier than you might think. By contributing to your IRA every year, you can have a $1 million Roth IRA within a few decades. By maxing out your annual Roth IRA contributions and taking advantage of catch-up contributions when you turn 50, you may be able to reach your goal even sooner.
The key to success is to get started: Maximizing your contributions in 2024 will set you up to live the retirement you’ve always dreamed of.
