Grow Your IRA to $1 Million With These 3 Moves

You don’t necessarily need to retire with $1 million to live comfortably during your senior years. But let’s be real — it’s a good goal to have.

Bringing a $1 million nest egg into retirement could help you cover your living costs and easily have money left over for goals like travel. And even if you end up collecting a generous benefit from Social Security, the extra money could come in handy in paying for healthcare and other necessities.

Getting to $1 million in a 401(k) plan over time is a pretty reasonable goal, since those plans come with very generous contribution limits. IRAs, however, don’t let you contribute as much, so growing yours to $1 million may be more challenging.

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But that doesn’t mean it can’t be done. In fact, if you make these three moves, you could end up with a $1 million IRA by the time your senior years roll around.

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.

3. Invest in stocks

The numbers we’ve seen above all hinge on an 8% average annual return in your IRA. And that return is doable if you load up on stocks.

The great thing about IRAs is that unlike 401(k) plans, they allow you to put money into individual stocks. And if hand-picking companies is outside your comfort zone, you can load up on index funds that track the broad stock market instead.

The 8% return we keep using is a few percentage points below the stock market’s average, so it’s a reasonable return to assign to an IRA that’s stock-focused. But if you play it too safe in your IRA by going heavy on bonds, you may not get to enjoy the same results.

Make your IRA work for you

Not everyone has access to a 401(k) for retirement. And the good news is that you don’t need one to save $1 million or more. All you really need to do is start maxing out an IRA at a young age, take advantage of catch-up contributions, and invest in the stock market to grow your balance efficiently.

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