How to Build a Million-Dollar Roth IRA If You Haven't Turned 50 Yet

Retirement planning often gets put on the backburner when you're young, but if you want a shot at becoming a retirement millionaire, it's best to start sooner rather than later. There are many types of retirement accounts to choose from, including a 401(k) and traditional IRA. However, we'll focus on how you can crush your financial goals with a Roth IRA if you haven't turned 50 yet.

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Open an individual retirement account

For many, Roth IRAs are the best thing since sliced bread because you can contribute after-tax dollars now in exchange for tax-free income later. For example, if your annual investments grow into a million-dollar Roth IRA, you won't have to pay any taxes on withdrawals after you turn 59 1/2 and have followed the five-year rule . This can be particularly rewarding if you expect to be in a higher tax bracket in the future and want to eliminate the worry of future taxes.

Before you contribute money to a Roth IRA, make sure you understand the rules. Anyone with earned income can contribute to a Roth IRA -- up to the annual limit -- as long as your income does not exceed certain thresholds . For example, you can contribute the full amount to a Roth IRA if your income is under $146,000, and make reduced contributions until your income exceeds $161,000. The maximum contribution limit for savers under 50 is $7,000 in 2024.

If you get into the habit of maximizing contributions while you are younger, it may be easier to save more money as you get older. For instance, savers aged 50 and older can make an additional $1,000 catch-up contribution, bringing the total contribution limit to $8,000 in 2024.

You can open an individual retirement account through an online broker or other financial institution. Be sure to research the fees associated with the account and the types of assets you can invest in. High fees and limited investment options that don't align with your goals can reduce your chances of building a million-dollar Roth IRA, so choosing the right account provider is key to your success.

Create a contribution game plan

There's no specific amount that you are required to contribute to a Roth IRA, but contributing closer to the maximum amount can speed up your path to becoming a Roth IRA millionaire. Here's a plan to help you save as much as possible throughout the year so you can maximize your contributions and have more money to invest.

• Plan ahead : Start planning for the next year's contributions well in advance. By saving a little each month, you can avoid scrambling to make a large lump-sum contribution before the deadline. You have until the tax filing deadline, which is April 15, 2025, to make Roth IRA contributions for 2024.
• Don't waste windfalls : Stash away extra money, such as work bonuses or tax refunds, directly to your retirement account. That way, you don't have to solely rely on your main source of income to fund your Roth IRA.
• Automate contributions : Set up recurring contributions from a checking account to a Roth IRA so you don't have to manually contribute each month.

Put your money to work

Saving money and contributing to your Roth IRA is a good start to retirement planning, but to get closer to a million-dollar balance, you'll need to invest the money in your account. The first rule is to do your research and ensure you understand what you are investing in. You have many options, such as individual stocks , exchange-traded funds (ETFs), and other assets. It's important not to put all your eggs in one basket, as this can increase your risk. Identify the best mix of assets to help you achieve your goals, and reach out to a professional if you need help.

Below is an example of how your Roth IRA can grow over time with returns of 8%, 10%, and 12%, which aligns with historical averages . You'll have a good shot at amassing a $1 million Roth IRA in three decades if you earn a decent return. However, as you do your research and shop for investments, keep in mind that past returns are not guaranteed to continue in the future.

Data source: Author calculations.

The key ingredient to increasing your chances of building a million-dollar Roth IRA is time. By staying consistent, being disciplined, and keeping tabs on your investments, you'll be able to make progress toward your million-dollar IRA.

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