With a maximum annual contribution of $6,500, it’s hard to fathom becoming a Roth IRA millionaire. But we’re here to tell you that it’s not only possible, it’s actually quite easy!
Opening an account takes less than 10 minutes (and it’s free if you use one of our favorite low-cost brokerage firms). All you really have to do is make the maximum allowable contributions each year, then sit back and relax. Compound returns will work their magic and do the rest! The toughest part is doing the right thing on repeat, making those contributions like clockwork, and then just waiting.
Here’s a breakdown of the steps to becoming a Roth IRA Millionaire:
1. Open a Roth IRA account
The first step in becoming a Roth IRA millionaire is pretty obvious- you need to open up a Roth IRA account!
But, don’t just open an account with any broker. They’re not all created equal. Make sure to pick a reputable one with incredibly low fees, like Vanguard, Fidelity, or Schwab. This will ensure that your gains aren’t eaten away by bogus charges. Opening your Roth IRA at one of the big banks, for instance, is a massive no-no!
2. Fund the maximum allowable contributions
Next, start funneling money into your Roth. The maximum allowable contribution as it stands in 2023 is $6,500 per year (or $7,500 if you are over 50!). This amount typically increases a little each year, governed by the IRS.
One other rule to watch out for is income limits. If you make too much money, you won’t be able to contribute to a Roth directly. There are, however, a few different ways you can get money into your Roth if you are in the fortunate position of making too much money to make Roth IRA contributions directly.
Pro tip: Instead of transferring a lump sum once a year, consider breaking it up into monthly transfers (eg. $541 monthly). That makes maxing your Roth IRA feel more achievable. Be sure to set up automatic transfers too so that it’s one less thing to think about!
3. Invest in low-cost index funds
A common newbie money mistake is funding an investment account, but then forgetting to actually invest the money! Please do not forget this VERY important step!
Becoming a Roth Millionaire will take a long time. And if you’re in the wealth-building stage of your life, since your goal is long term growth, your best bet is to build an aggressive portfolio compromised of mostly stocks. We always recommend broad, low-cost index funds for building wealth. Because they are highly diversified, and have a low (or even zero) maintenance fee.
Over the long run, index funds outperform almost all actively managed funds. And history shows your returns will average about 10% per year for investing in a total stock market or S&P 500 fund! Let me stress average here because some years you’ll see even fatter returns! And in other years your portfolio will experience losses. But stay the course no matter what happens in the short-term and you’ll make it to your goal!
4. Repeat every year
Now that you’ve got the swing of it, repeat steps 2 and 3 every year to contribute and invest the maximum. Remember that the maximum contribution may change over time, but the good news is that it usually goes up. In fact, the Roth IRA contribution limit for 2024 will go from $6,500 to $7,000. That’s good news! And it means that your goal becomes possible on an even shorter timeline. Woohoo!
Also be sure that you are reinvesting any dividends!!! This ensures that all your money is working for you, and it can make a huge difference overtime.
5. Be Patient
Based on 2023 contribution limits, assuming no increases and an 8% return, you’ll be a Roth IRA millionaire in just under 34 years!
The only thing that stands between you and millionaire status is your willpower. It’s important not to touch your portfolio or tinker with it at all once you’ve set it up! Remember, slow and steady wins the race.
Other ways to fund your Roth IRA
There are a few other options to move money into your Roth IRA that could help you grow the account to $1M faster.
- You could open a Roth 401k (if your employer allows this), and then roll those funds over directly to your Roth IRA! This gives you a higher contribution limit each year. Don’t be afraid to sock money away into both accounts either.
- You could also use the Mega-backdoor Roth IRA. This strategy is recommended for high income earners- here’s more on that!
- If you surpass the regular Roth IRA income limits, check out our post on performing Backdoor Roth IRA contributions.
The Bottom Line
Becoming a Roth IRA millionaire is not only possible, it’s actually quite easy! Just set up an account, fund it annually, invest in low cost index funds, then wait patiently. Boom – you’ll get there over the course of a few decades.
One last word of advice… While it’s cool to achieve the Roth IRA Millionaire title, be sure to not neglect other types of retirement accounts while building wealth. For the most flexibility in retirement, you’ll want your funds mixed across both pre-tax and post-tax investment accounts. Like a Traditional 401k, HSA, or a regular brokerage account.
So what are you waiting for? Head over to your favorite low cost broker, open up a Roth IRA, and start building that wealth! 💪
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