How To Become a Millionaire With an IRA in 37 years

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Money expert Clark Howard thinks saving and investing for retirement should be your most important financial goal beyond supporting yourself.

The further you are from the year you expect to retire, the harder it probably is to have the discipline to save for it. That can be especially true if you don’t have access to a 401(k) plan at work.

Fortunately, an Individual Retirement Account (IRA) can help you save and invest some serious retirement money. It doesn’t take huge amounts of money on a yearly basis, but it does take consistency and time.

You can go from $0 to $1 million saved for your retirement simply by contributing $6,000 to an IRA for a little more than 37½ years. Keep reading to find out how.


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How To Become a Millionaire With an IRA

The biggest challenge to becoming a millionaire with an IRA is that you’re limited to contributing only $6,000 per year in 2021 ($7,000 if you’re 50 or older).

But IRAs do have some advantages over 401(k) plans, even thought 401(k)s offer much higher contribution limits and the possibility of a company match.

The investment options for IRAs are much more plentiful than those for 401(k)s. Plus, there’s a pretty good chance that you’ll pay less in fees for an IRA compared to a 401(k).

And depending on your income, there’s even a Clark-approved way to combat those lower contribution limits.

Still, the best way to make use of an IRA is to start contributing as early in your career as possible.


IRA Millionaire: A Detailed Breakdown

IRA FactorAmount
Annual Contribution$6,000
Annual ROI on Investments7%
Time to $1 Million37 years, 6 months, 3 days

If you contributed this year’s IRA maximum of $6,000 every year and earned a 7% average annual return on investment (ROI), it would take a little more than 37½ years to grow your account to $1 million.

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But it’s possible to get there sooner.

You could get a better ROI on your investments, for instance. Once you turn 50 years old, you can start contributing an extra $1,000 in catch-up contributions for a total of $7,000 per year. Also, the IRS periodically raises contribution limits for retirement accounts to keep pace with inflation and cost of living.

Those are great things, but $1 million may not be enough to fund your retirement. If you’re able to do so, it’s a good idea to contribute to a 401(k) plan in addition to an IRA. In fact, Clark recommends contributing the maximum allowed to your 401(k) every year ($19,500 in 2021) before even starting an IRA.

You can also invest on your own in a taxable account at a brokerage such as Fidelity, Schwab or Vanguard.


Roth vs. Traditional IRAs: Unlocking the Secret Code

The most common types of IRA accounts are traditional IRAs and Roth IRAs.

You contribute pre-tax dollars to a traditional IRA. That means any money you put into your IRA account reduces your income tax bill for the year. You won’t owe any taxes on that money until you withdraw from the account in retirement. At that point, the IRS will tax the money you take out as income.

You contribute post-tax dollars to a Roth IRA. That means you’ll pay federal income taxes on every dollar that you put into your Roth account (and applicable state income taxes). However, as long as you wait until you’re at least 59½ years old to make any withdrawals, you’ll never pay another cent in taxes on that money.

That’s a huge difference, especially when it comes to saving for retirement with an IRA. Whether you save $1 million or $100,000 in an IRA, you’ll either owe a substantial percentage of that money to the IRS when you withdraw (traditional) or you won’t owe a penny (Roth).

So the $6,000 you put into a Roth IRA each year (if you’re maxing out your allowable contributions) is going to be more valuable to you in retirement than the $6,000 you put into a traditional IRA.

Why Clark Loves Roth IRAs and 401(k) Plans

Clark feels strongly that taxes will increase in the future due to continual budget deficits at the federal level. So unless you’re in one of the highest tax brackets now, paying taxes on your IRA contributions now could be more cost effective than paying them in the future.

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Clark says this about 401(k) options, but it applies to IRA options as well: “Roth is vastly superior to traditional. With a Roth, you put in money that’s already been taxed and it’s never taxed again.”

Roth IRA Eligibility: Income Limits

If you make a certain amount of income, you won’t be allowed to contribute directly to a Roth IRA. The number varies depending on whether you’re single or married (and if you’re married, whether you file separately or jointly).

For example, in 2021, if you’re single and make more than $140,000, you can’t directly contribute any money to a Roth IRA.


Final Thoughts

The formula for stacking a large retirement nest egg in an IRA account is simple:

  1. Max out your IRA contributions.
  2. Repeat Step 1 every year for a long time.

If you’re decades from retirement, an IRA can be a primary tool to fund your retirement — or at least a solid second place behind your 401(k). If you’re planning to retire sooner than that, it’s at minimum a nice supplement to your 401(k) plan and any outside investments you’ve made.


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