1. Start maxing out from a young age
Right now, IRAs max out at $6,000 a year for savers under the age of 50. By contrast, 401(k)s max out at $19,500 a year for the same age group. But if you begin funding your IRA from a young age, that lower limit shouldn’t stop you from becoming a millionaire.
Let’s assume your IRA generates an average annual 8% return (more on that in a bit). If you max out your IRA at today’s limit between the ages of 25 and 50, you’ll wind up with a balance of about $438,600. That’s clearly not $1 million — but that’s also the balance you’ll be looking at by age 50, and presumably, you won’t be retiring that young.
2. Make catch-ups
Both IRAs and 401(k)s allow workers aged 50 and over to make catch-up contributions for retirement. Right now, IRA catch-ups are worth $1,000, which may not seem like a lot of money but can add up over time.
Now, let’s take our $438,600 balance from our example and assume that between ages 50 and 67, you max out your IRA at $7,000 in contributions. Assuming that same 8% return, you’ll be looking at a balance of $1.86 million. That’s because you’ll not only be putting more money into your retirement account, but also letting the $438,600 you’ve amassed thus far go to work.
