Yes, investors can grow an individual retirement account (IRA) to millions, maybe even billions, but to reach those milestones, you'll need to contribute to your IRA early and consistently for several decades. Although the number of IRA-created millionaires rose to nearly 420,000 people in 2024, the average IRA balance is $127,534. Bear inꦇ mind that the actual amount you can earn depends on your age, contributions, and how long you've been contributinܫg.

How an IRA Works

An IRA is one of the most common retirement savings accounts. Unlike 401(k)s, which are retirement accounts only offere🅺d by employers, anyone can open an IRA and begin🦂 saving for retirement.

There are essentially two types of IRA: a 澳洲幸运5官方开奖结果体彩网:traditional IRA and a Roth IRA. What sets these accounts apart is how they are funded and how c🔥ontributions affect your taxes.

You fund a traditional IRA with 澳洲幸运5官方开奖结果体彩网:tax-deferred contributions, meaning you get an upfront 澳洲幸运5官方开奖结果体彩网:tax deduction in the amount of each contribution, decreasing your taxable income that year. However, you'llꦗ pay income taxes on the money at withdrawal time.

Conversely, you fund a Roth IRA with after-tax income or income you've already paid taxes on, meaning you get no upfront tax deduction. However, your earnings grow tax-free, and your withdrawals in retirement are tax-free. The tax-free income can come in handy if you believe you'll be in a higher 澳洲幸运5官方开奖结果体彩网:tax bracket when you retire.

Contribution Limits for 2025

Every year, the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) announces contribution limits for retirement accounts based on tax-filing status. You can also make an additional 澳洲幸运5官方开奖结果体彩网:catch-up contribution if you're at least 50 years old.

In 2025, the IRA contribution limit remains $7,000, with the opportunity for a catch-up contribution of $1,000 (for those at least 50 years old). While anyone can contribute to a traditional IRA, Roth IRAs have income restrictions. The amount you can contribute to a Roth depends on your tax filing status and 澳洲幸运5官ꦜ方开奖结果体彩网:modified adjusted gross income (MAGI).

The Power of Interest

Investors and savers know that earning interest in a savings account helps the balance grow over time. With the power of 澳洲幸运5官方开奖结果体彩网:compound interest, you earn interest on the prin🍷cipal balance and previously earned interest.

Depending on your account, the financial institution might calculate the compound interest every day, month, or year. You'll earn the most in interest if the institution uses daily compounding interest. 

Factors That Impact How Much Your IRA Grows

Although contributing to your IRA each year can help build wealth in retirement, other factors can impact how much your money grows, including the following:

Diversified Portfolio

When you open your IRA, you'll typically establish target goals for the account. If you're unsure of the investments to choose, a retirement target fund may help since it has a mix of stocks, bonds, and CDs. Depending on the financial institution, you may have several in💯vestment options for an IRA, incl🙈uding:

• 澳洲幸运5官方开奖结果体彩网:Mutual funds, which contain a basket of investments like stocks and bonds
• 澳洲幸运5官方开奖结果体彩网:Exchange-traded funds (ETFs), which contain stocks and bonds but sometimes track an index like the S&P 500
• Equities and 澳洲幸运5官方开奖结果体彩网:corporate bonds
• 澳洲幸运5官方开奖结果体彩网:U.S. Treasuries, which are fixed-rate bonds issued and guaranteed by the U.S. government
• Certificates of deposit (CDs) and savin🤡gs accounts that provide conservative growth at prevailing interest rates

Diversifying the types of investments in your IRA can help you manage the risk of losses while generating earnings growth.

Age and Consistency

The earlier you 澳洲幸运5官方开奖结果体彩网:open your IRA and start funding it, the better. Automating your contributions so you consistently fund the account is another strategy to help you grow the account. This is because your contributions and interest will have much longer to compound, and you'll be accustomed to saving for retirement.

Risk Tolerance and Time Horizon

Risk tolerance refers to the amount of risk you're willing to take when investing, meaning the amount of volatility or fluctuations in the value of your investments that you can withstand. A risk-averse person might opt for the stability of a traditional 澳洲幸运5官方开奖结果体彩网:savings account, U.S. Treasuries, or CDs in their IRA.

Conversely, a person with high risk tolerance may opt for investing in stocks and mutual funds that may endure significant꧟ price declines during market downturns over the years, but provide stronger gains during market upturns.

A helpful way to gauge the level of risk tolerance your IRA can handle is to consider the time horizon or how long you have until retirement. Typically, the farther out from retirement you are, the more risk (and potential for earning) your IRA can stand. In other words, your investment portfolio has time to recover from any market downturns since you don't need the money anytime soon.

As you get closer to retirement, you might adjust your portfolio to feature more stable investment products like bonds and CDs. In other words, as you get closer to withdrawing your retirement funds, you might opt f🍨or investmentsꦕ that generate a stable, fixed income.

It's important to realize that there will be market downturns and you'll need to 澳洲幸运5官方开奖结果体彩网:adjust your investments for risk the closer you get to retirement. Consult a financial planner or advisor to help determine your risk tolerance and mixture of investments.

An Example: IRA vs. Savings Account

If you're unsure how an IRA compares to a savings account, consider these examples. We'll assume that the contribution limits stay the same and that you contribute the maximum to your IRA every year.

Theꦺ table below shows your earnings comparison for three investment sꦿcenarios after 10, 30, and 50 years. In each scenario, we contribute $7,000 per year.

For example, let's say you contribute $7,000 per year for 10 years to an IRA that's invested in the market, earning 8% annually on average. At the end of a decade, you would have $116,460.

Next, you contribute $7,000 per year for 10 years to a savings account, earning the current national savings account average of 0.41%. You'd only have $78,557 over 10 years.

In the third scenario, if you contribute $7,000 per year for 10 years to a high-yield savings account with an average interest rate of 4.5%. You would have $96,839 in 10 years.

However, over 50 years, you could earn $4,342,407 with the IRA investments and over $1,312,035 with the high-yield savings account, but over $395,946 with the savings account.

ꦆKeep in mind that interest rates will fluctuate dramatically over such a long period of time, but our example sh🅺ows how much more you could earn at different rates.

The Bottom Line

Your best bet for growing an IRA and building wealth in retirement is to start early and contribute up to the annual limit every year. Avoid the temptation to withdraw funds from the account before you retire since you would get hit with fees and penalties (plus lose out on potential earnings). To help you chart a retirement plan, consider a trusted financial advisor who can help you manage your investment portfolio.