8 Secrets of IRA Millionaires

Just about all of us need to be saving and investing for retirement, and tax-advantaged retirement accounts such as IRAs can be a big help. It may be hard to believe, but some people have amassed many, many millions in IRAs. For example, one of Warren Buffett's investing lieutenants, Ted Weschler, managed to grow his IRA from a value of $70,000 to $264 million !

Even if you end up falling far short of $264 million in your IRA, you may still be able to become an IRA millionaire. If you're skeptical of that, know that Fidelity Investments, which administers retirement accounts for millions of Americans, recently reported close to 500,000 IRA millionaires among them.

Image source: Getty Images.

Here are some tips and strategies that may help you join their ranks.

1. Avoid high-interest rate debt

First things first. Steer clear of high-interest rate debt. If you're already mired in it, dig out of debt as fast as you can. Carrying such debt can make it hard or impossible to reach your financial goals. If you have, say, $25,000 in debt and are paying a not-uncommon interest rate of 25%, that amounts to annual payments to your lender of $6,250 -- each year. Paying it off may be hard, but not doing so can be very costly.

2. Have a budget

Next, have a household budget spelling out how much you have earmarked for expenses such as food, housing, insurance, transportation, taxes, entertainment, and so on -- and how much you want to contribute to your savings and investment accounts. Be sure you do contribute those sums regularly, too. Automating your investing can be very helpful.

3. Don't procrastinate

Next, don't put off saving and investing for your future. The following table illustrates how important this is. Consider that the long-term annual average return of the S&P 500 is around 10%. So if you assume somewhat lower returns, just to be conservative, here's how your money might grow over time:

Source: Calculations by author.

You can see what a difference there is between any two sums that are five years apart. The lower sum is what you might end up with if you put off saving and investing for five years. The higher number is what you might end up with if you start saving and investing now . The price of procrastination is high.

4. Don't let your spouse procrastinate

If you're married and you're aiming to be an IRA millionaire, be sure to work together with your spouse toward that goal. If you're not on the same page, your spouse might be spending a lot of dollars that could go toward reaching your financial goals or, worse, getting you both mired in debt.

Having a two-income household can be very powerful, so have some financial conversations and get on the same page.

5. Contribute aggressively

To end up with significant wealth, you need to be contributing significant sums to your investment accounts -- regularly. Revisit the table above and see what a difference there is in the sums for each column. Investing $7,500 annually amounts to about $625 per month, on average. Investing $15,000 amounts to about $1,250. Can you sock away more than you're currently managing? There are lots of ways to save and invest more .

6. Choose the right IRA

Becoming an IRA millionaire is more achievable for many people than they think. It's important to be using the kind of IRA account that will serve you best, though. The two main kinds are the traditional IRA and the Roth IRA .

With a traditional IRA (and a traditional 401(k), as well), you get an upfront tax break: The amount you contribute for a certain tax year can be deducted from your taxable income for that year. If you contribute $7,000 this year, your taxable earnings shrink by $7,000, shrinking your tax bill.

With a Roth IRA (and a Roth 401(k)), you contribute post-tax dollars, so there's no upfront tax break. But if you play by the rules, when it comes time to take money out of the account, you can do so tax-free ! For those with many years before retirement, opting for a Roth IRA can be a powerful move, leaving you with many thousands of dollars available to you without any taxes removed.

7. Consider index funds

So how will you invest all these savings? Well, it's hard to beat the stock market for building long-term wealth, and one of the best ways to invest in stocks, if not the best way for most people, is simply to invest in one or more low-fee S&P 500 index funds and/or an even broader index fund . Here are some possibilities:

• Vanguard S&P 500 ETF (NYSEMKT: VOO)
• SPDR S&P 500 ETF (NYSEMKT: SPY)
• Vanguard Total Stock Market ETF (NYSEMKT: VTI)
• Vanguard Total World Stock ETF (NYSEMKT: VT)

8. Have a long-term outlook -- and stick to your plan

Finally, understand that you're not going to become a millionaire overnight -- or even next year. You'll need to have a long-term outlook and you'll need to be really patient. If you can stick to your plan for decades, amazing things can happen .

So don't assume that you can't become a millionaire. There's a good chance you can -- and if you fall short, you'll still be better off financially.

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