How to become a Roth IRA millionaire by the time you're 65 (2024)

FAQs

How to use a Roth IRA to become a millionaire? ›

Long-time personal finance columnist Scott Burns writes that by working for four summers starting at age 16, putting the money in a Roth IRA, investing it wisely, and waiting until age 67, it's simple to become a millionaire. 1 That's the 51-year plan. But what if you're not that patient—or that young?

And the numbers are surprising. For instance, if you start investing at 25, you must save $6.19 a day to be a millionaire by 65. The amount rises to $16.99 in daily savings by age 35; $47.83 by age 45 and jumps to $171.90 by 55. “For around the price of a fast food meal, you could end up a millionaire.

Proactive tax planning and one highlighted strategy is the "Rich Person Roth," which utilizes cash value life insurance to unlock tax-free income in retirement potentially. High earners in states with high taxes often find it challenging to contribute to a Roth IRA due to income restrictions.

If you contribute 5,000 dollars per year to a Roth IRA and earn an average annual return of 10 percent, your account balance will be worth a figure in the region of 250,000 dollars after 20 years.

The story, based on confidential IRS data obtained by ProPublica, revealed that tech mogul Peter Thiel has the largest known Roth IRA, worth $5 billion as of 2019.

Consider a Roth conversion

This can make sense particularly if you expect to be in a higher tax bracket in the future and have a long time horizon. Some advisors also see a so-called backdoor Roth IRA as another way to secure the tax features provided by Roth accounts.

If your income exceeds the threshold set by the IRS, avoid contributing to a Roth IRA directly. And if you've already made excess contributions, withdraw them before your tax deadline to avoid being penalized.

Let's say you open a Roth IRA and contribute the maximum amount each year. If the base contribution limit remains at $7,000 per year, you'd amass over $100,000 (assuming a 8.77% annual growth rate) after 10 years. After 30 years, you would accumulate over $900,000.

How can I be a millionaire in 5 years? ›

As an individual making $200,000 per year, you cannot contribute to a Roth IRA if you're single, but can if you're married and file jointly. However you can convert funds from a pre-tax account into a Roth IRA through a process known as a "backdoor Roth."

If you keep saving, you can get there even faster. If you invest just $500 per month into the fund on top of the initial $100,000, you'll get there in less than 20 years on average. Adding $1,000 per month will get you to $1 million within 17 years. There are a lot of great S&P 500 index funds.

But the tax incentives that the new accounts provided weren't lost on the rich or their accountants. In recent decades, with the advent of the Roth IRA and relaxed restrictions on IRA rollovers, ultrawealthy Americans have reportedly built tax-sheltered accounts worth many millions—or even billions—of dollars.

By The Currency editors

A Roth IRA has some powerful tax benefits and the potential to grow your money exponentially before retirement. However, it's important to understand how these accounts work, what return you can expect, and how to maximize your account.

This is roughly one-third the 401(k) limit, for instance. Roth IRAs also have income limits to contend with, though. More specifically, you cannot contribute to a Roth IRA if your income exceeds $161,000 for single filers or $240,000 for joint filers.