Bottom Line. You can become a retirement millionaire yourself using only basic IRAs and your 401(k), or a similar workplace account, if you make regular investments in a diversified set of funds and stick to it over time.
Given enough time, anyone who is eligible can build a $1 million Roth IRA. With the comparatively low contribution limits and income limitations, there are relatively few people who have been able to reach this financial freedom milestone.
If you have more than $1 million saved in retirement accounts, you are in the top 3% of retirees. According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more.
In 2024, the contribution limit is $7,000 or $8,000 if you're 50-plus. The Roth IRA income limits are less than $161,000 for single tax filers, and less than $240,000 for those married filing jointly. Arielle O'Shea leads the investing and taxes team at NerdWallet.
This isn't the case for traditional IRA contributions, as there are no income limits. However, for traditional IRAs, the amount you can deduct from your income phases out at certain MAGIs if you or your spouse are also covered by a workplace retirement plan, like a 401(k).
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.
For 2023, as a single filer, your modified adjusted gross income (MAGI) must be under $153,000 to contribute to a Roth IRA. As a joint filer, it must be under $228,000. You must be 59 1/2 and have held the Roth IRA for five years before tax-free withdrawals on earnings are permitted.
High Fees and Low Control
The unfortunate truth is that 401(k) plans come with high management fees. This eats into your earnings in the long run. These fees are oftentimes hidden among legal jargon, according to the Rich Dad team. Fees can be, but aren't limited to transaction fees, legal fees and bookkeeping fees.
With $100,000 at your disposal, you can afford to max out both a 401(k) and an IRA if you're eligible. The 401(k) contribution limit is $23,000 in 2024 ($30,500 for those age 50 or older). Combine that with an IRA contribution limit of $7,000 in 2024 ($8,000 if age 50 or older).
Rely on the math
Assuming an annual January contribution to your Roth IRA of $6,500 and an 8% average long-term investment return, you can expect to become an IRA millionaire in just under 34 years.
According to Schwab's 2023 Modern Wealth Survey, Americans perceive an average net worth of $2.2 million as wealthy. Knight Frank's research indicates that a net worth of $4.4 million is required to be in the top 1% in America, a figure much higher than in countries like Japan, the U.K. and Australia.
Around the U.S., a $1 million nest egg can cover an average of 18.9 years worth of living expenses, GoBankingRates found. But where you retire can have a profound impact on how far your money goes, ranging from as a little as 10 years in Hawaii to more than than 20 years in more than a dozen states.
Your IRA might lose value at times when the market is slumping or your investments aren't performing well. If you don't touch your investments and wait things out, you may not lose a dime in your retirement account.
To get tax-advantaged growth from your IRA contributions, remember to do 3 things: contribute what you can, invest your contribution, and set up automatic investments.
There are two approaches you could take. The first is increasing the amount you invest monthly. Bumping up your monthly contributions to $200 would put you over the $1 million mark. The other option would be to try to exceed a 7% annual return with your investments.
Too many people are paid a lot of money to tell investors that yields like that are impossible. But the truth is you can get a 9.5% yield today--and even more. But even at 9.5%, we're talking about a middle-class income of $4,000 per month on an investment of just a touch over $500K.
At least 378,000 people with Fidelity 401(k) plans had at least $1 million in their accounts at the end of June, compared to 299,000 at the end of 2022.
High earners may be unable to make direct contributions to a Roth individual retirement account (Roth IRA) due to income limits set by the Internal Revenue Service (IRS). A loophole, known as the backdoor Roth IRA, provides a way to get around the limits.
They stayed the course over decades of stock market turbulence, riding the ups and downs to becoming 401(k) millionaires. New data from Fidelity Investments found the number of employees with 401(k) balances over $1 million spiked 26 percent in the second quarter, to 378,000, compared with 299,000 at the end of 2022.
The Rich Man's Roth is an investment plan that allows high-income earners to enjoy tax-free growth of wealth and tax-free income. To achieve this, permanent cash value life insurance can be utilized so that one may build a large nest egg for retirement with no taxes imposed on the money stored in it.
If your age is greater than 50, it likely doesn't make sense to convert because there is not enough time to allow the Roth IRA growth to exceed the tax cost today.
For example, let's say you start contributing to a Roth IRA at age 25. You contribute $6000 annually (the maximum contribution limit for 2022) until you reach age 70. Your investments earn an average annual return of 7%. Then, by the age of 70, you would have a corpus of $2 million in your Roth IRA.