Some ultra-wealthy individuals have amassed hundreds of millions — or even billions — of dollars in tax-sheltered Roth individual retirement accounts, according to a report released Thursday from ProPublica, an investigative news outlet.
Despite the nickname, the “Rich Person's Roth” isn't a retirement account at all. Instead, it's a cash value life insurance policy that offers tax-free earnings on investments as well as tax-free withdrawals.
If you're on the lower end of the income scale, you can still work toward a million-dollar Roth IRA. You may even qualify for a tax credit, known as the Saver's Credit, when you make contributions to a Roth IRA. This could wipe out your tax bill and allow you to save more money for retirement.
Specifically, ProPublica found that Buffett has $20.2 million in his Roth IRA at the end of 2018, while his top lieutenant at Berkshire Hathaway, Buffett's holding company, has even more in a Roth -- $264.4 million.
Many wealthy people use true self-directed IRA (or 401k) accounts to accumulate multimillion-dollar retirement portfolios. These are unlike the self-directed plans most people have. Instead, the wealthy use self-directed retirement plans to invest in non-traditional investments.
Despite rules designed to limit IRA contributions by the wealthy, almost 29,000 Americans hold these giant accounts, and nearly 500 of them somehow managed to get $25 million or more into their IRAs.
IRA Millionaire: A Detailed Breakdown
If you contribute this year's IRA maximum of $6,000 every year and earn a 7% average annual return on investment (ROI), it would take a little more than 37½ years to grow your account to $1 million.
Stocks and Stock Funds
Some millionaires are all about simplicity. They invest in index funds and dividend-paying stocks. They like the passive income from equity securities just like they like the passive rental income that real estate provides. They simply don't want to use their time managing investments.
Fidelity, one of the largest managers of workplace plans, reported that its number of 401(k) millionaires in the fourth quarter of 2021 jumped 32 percent to 442,000, up from 334,000 a year earlier. The number of IRA millionaires increased 30 percent, from 288,300 to 376,100, for the same time period.
A Rich Man's Roth utilizes a permanent cash value life insurance policy to accumulate tax-free funds over time and allow tax-free withdrawal later.
Your way to millions
Amassing $1 million in your Roth IRA is a long-term game. The earlier you start, the more time you'll have to reach your goals. If you start your Roth IRA journey in 2022, you can make consistent contributions and max out your account every year to get you to the million-dollar mark.
There is a reason why the rich do not invest their money in a 401k or an IRA. It is because those types of investments were created by the rich, to take money from the poor. If you want to be rich, NEVER invest in a 401k and IRA's.
401k millionaire total smashes record
Fidelity told 401k Specialist its 401k platform had 442,000 millionaires (those with account balances of at least $1 million) as of the end of 2021, up from 404,000 at the end of Q3 2021. The previous record was 412,000, reported at the end of Q2 2021.
The remaining respondents calculated that they need less than $500,000. But how many people have $1,000,000 in savings for retirement? Well, according to a report by United Income, one out of six retirees have $1 million.
Fidelity Investments reported that the number of 401(k) millionaires—investors with 401(k) account balances of $1 million or more—reached 233,000 at the end of the fourth quarter of 2019, a 16% increase from the third quarter's count of 200,000 and up over 1000% from 2009's count of 21,000.
Some millionaires keep their cash in Treasury bills that they keep rolling over and reinvesting. They liquidate them when they need the cash. Treasury bills are short-term notes issued by the U.S government to raise money. Treasury bills are usually purchased at a discount.
No matter how much their annual salary may be, most millionaires put their money where it will grow, usually in stocks, bonds, and other types of stable investments. Key takeaway: Millionaires put their money into places where it will grow such as mutual funds, stocks and retirement accounts.
This is a difficult question because it depends on many things, such as your pre-retirement annual income, expenses, and retirement goals. However, in general, $150,000 is a good retirement income.
By the time you are 35, you should have at least 4X your annual expenses saved up. Alternatively, you should have at least 4X your annual expenses as your net worth. In other words, if you spend $60,000 a year to live at age 35, you should have at least $240,000 in savings or have at least a $240,000 net worth.
How much will a Roth IRA grow in 20 years? While a $6,000 initial deposit in a Roth IRA can grow to $23,218 in 20 years at a 7% annual rate of return, it will grow much more if you continue to make monthly or yearly contributions to the Roth IRA.
Bank of America, Citibank, Union Bank, and HSBC, among others, have created accounts that come with special perquisites for the ultra-rich, such as personal bankers, waived fees, and the option of placing trades. The ultra rich are considered to be those with more than $30 million in assets.
Millionaires also have zero-balance accounts with private banks. They leave their money in cash and cash equivalents and they write checks on their zero-balance account. At the end of the business day, the private bank, as custodian of their various accounts, sells off enough liquid assets to settle up for that day.
Wealthy people take advantage of their employers' 401(k) plans. A survey of 10,000 millionaires showed that there was one account type most had in common: A 401(k). According to the survey by Ramsey Solutions, eight in 10 millionaires had this common account in their portfolios.