Retiring as a multimillionaire is possible for the average American if the maximum amount allowed is contributed to his or her Roth IRA annually. Keep reading to learn about how investing in a Roth IRA can help set you up for a comfortable retirement.
Suggested Article: You Can’t Get Rich If You Can’t Wait to Get Rich
What Is a Roth IRA?
A Roth IRA is a retirement account that allows you to save money specifically for your retirement years. You can contribute a maximum of $5,500 annually ($6,500 if you’re 50 or older) to a Roth IRA, per IRS regulations. If you contribute the maximum amount allowed each year, it is possible to reach a couple of million dollars by the time you reach retirement age. Of course, this depends upon how soon you start contributing to your IRA. The sooner you start saving, the more you’ll end up with down the line. You can calculate how much you will have saved by retirement based on your age and the amount you save by using the David Ramsey Investment Calculator.
What a Roth IRA Will Look Like at Age 70
For easy math, let’s say you didn’t start putting money into your Roth IRA until age 18 (suggested article: How old do you have to be to start investing?). Let’s assume an 8% annual return, which is very reasonable given that the benchmark S&P 500 has gained nearly 12% since inception. The max annual contribution is $5,500. The money grows tax-free. You could simply place your Roth IRA money in a lazy portfolio following the example of our CEO.
By following these steps, you would have $3,987,645.24 by age 70. Even with inflation, that could possibly be enough to retire on. All from simply tucking away $5,500 per year — that’s not a lot of money.
It’s important to note the restrictions that come with having a Roth IRA. The “phase-out” period for an individual contributing to a Roth IRA is a yearly salary of $116,000 to $131,000. If you make this amount of money, you may still be able to contribute, but you’ll need to get creative. The following articles are helpful if you find yourself in this situation:
- Kiplinger: How to Fund a Roth IRA If You Earn Too Much
- Forbes: How A High-Earning Couple Got Roth IRAs And You Can Too
- The Street: How to Contribute to a Roth IRA When You Make Too Much Money
Regardless of age, all Americans should spend some time thinking about and investing in their retirement years. With little effort, you can put away enough money annually into a Roth IRA to retire as a millionaire. If you can’t afford to invest the max contribution of $5,500 annually, you can look into ways to make money on the side, including jobs you can do from home.