Can Your IRA Make You a Millionaire?

IRAs are one of the most popular retirement accounts. It’s open to anyone with a year-round income and gives you the freedom to invest in almost anything. You can also choose when to pay taxes on your funds.

However, IRAs have one major drawback. In 2024, you can only deposit up to $7,000, and if you’re over 50, you can only deposit up to $8,000. That’s a far cry from the $23,000 ($30,500 for those over 50) that workers can save in a 401(k).

If you only save in an IRA, this can be frustrating. Especially since many Americans believe they need to save close to $2 million for retirement. But don’t worry. If you save diligently, you could end up with a lot of money in your IRA.

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Can you save more than $1 million with an IRA?

Saving more than $1 million may be difficult this year when the IRA contribution limit is only $7,000, but there are two important things to keep in mind.

First, IRA contribution limits increase over time. So just because you’re currently limited to $7,000 doesn’t mean that limit will stay in place forever. And when you turn 50, you can donate additional savings.

Second, you’ll be investing your IRA money for the future, and if you invest wisely and avoid early withdrawals, your earnings will likely make up the majority of your retirement savings. So, it is possible to achieve $1 million or more without actually saving $1 million of your own money.

If you contribute $7,000 to an IRA each year for 40 years, your account will have $280,000 in personal contributions. However, if you invest everything and the amount invested earns an average annual rate of return of 10% during that period, the final balance will be $1.07 million. And again, this does not account for additional contributions or changes to the IRA annual contribution limits.

So, while it’s certainly possible to become an IRA millionaire, whether it’s realistic depends on your income, expenses, and how many years you have until retirement. If you’re 60 and have no retirement savings, you’ll never become a millionaire, although there are still things you can do to ensure a more comfortable retirement.

Don’t limit yourself to just IRAs

An IRA can be a great place to put away your retirement savings, but it’s not always the best option. Consider all your options before deciding where to invest your money to get the most value from it.

For example, if you qualify for an employer match, it’s best to put your money in a 401(k) first until you can claim the full match. You can then convert it back to an IRA if you wish. And if you make the most of it, you can go back to your 401(k) for the rest of the year.

Or, if you don’t have access to a workplace retirement plan, you can put a significant portion of your savings into a health savings account (HSA), assuming you qualify. Technically, you can use this cash for medical expenses at any age, but it’s also a great place to store your retirement savings. Some HSA providers also allow you to invest your funds.

If your problem is not lack of access to retirement planning but lack of funds, your path will be more difficult. You can use your year-end bonus or tax refund to save intermittently in an IRA. But you may also need to think about other ways to free up cash, such as working part-time until retirement or delaying retirement longer than you originally intended.

Don’t forget that you, too, have Social Security benefits you can rely on. It’s best to have a billing strategy in place so you can estimate how much you can earn from the program. This will help you figure out how much you need to save for retirement.

It’s okay if you end up growing more than your current retirement plan. The best plans change over time. Review the retirement accounts you’re using and the amount you’re contributing annually, and do the best you can where you are.