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| Roth IRA Contribution Limits | ||
|---|---|---|
| Filing Status | 2025 MAGI | Contribution Limit |
| Married filing jointly or qualified widow(er) | Less than $236,000 | $7,000 ($8,000 if you’re 50 or older) |
| $236,000 to $246,000 | Reduced | |
| $246,000+ | Not eligible | |
| Single, head of household, or married filing separately (and you didn’t live with your spouse at any time during the year) | Less than $150,000 | $7,000 ($8,000 if you’re 50 or older) |
| $150,000 and $165,000 | Reduced | |
| $165,000+ | Not eligible | |
| Married filing separately (and you lived with your spouse at any time during the year) | Less than $10,000 | Reduced |
| Less than $10,000 | Not eligible | |
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 compound interest, you earn interest on the principal 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.
Important
You can contribute toward your previous year’s IRA limit up until tax day, which is usually April 15.
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 investment options for an IRA, including:
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 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 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 for investments that generate a stable, fixed income.
It’s important to realize that there will be market downturns and you’ll need to 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.
Tip
Whether you’re risk-averse or a risk-taker when investing, the earlier you start funding your IRA, the better your account can withstand market fluctuations.
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.
The table below shows your earnings comparison for three investment scenarios 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.
| Example Savings Return By Account Type | |||
|---|---|---|---|
| Type of Account | Funds After 10 Years | Funds After 30 Years | Funds After 50 Years |
| Traditional IRA | $116,460 | $862,967 | $4,342,407 |
| Traditional Savings | $78,557 | $230,762 | $395,946 |
| High-Yield Savings | $96,839 | $453,022 | $1,312,035 |
Keep in mind that interest rates will fluctuate dramatically over such a long period of time, but our example shows 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.
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