3 Secrets of Roth IRA Millionaires

Retiring as a millionaire gives you more options for your senior years. It could mean you get to do what you’ve always wanted to do and enjoy a comfortable, stress-free lifestyle.

But reaching retirement age with $1 million or more in a Roth IRA isn’t something that usually happens by accident. It takes strategic planning to get to that place. And if retiring with a million dollar Roth IRA is a goal of yours, you should know that these are some of the steps savers typically take to get there.

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1. They start saving from an early age

When it comes to growing your retirement wealth, time is a powerful tool that you can use to your advantage. The more time you give your money to grow, the larger the Roth IRA balance you’re likely to end up with.

Not everyone is motivated to save for retirement right at the start of their career. But if you push yourself to start funding a Roth IRA at an early age, you may find that you can reach a million dollars or more in retirement savings fairly easily.

Let’s say you invest $350 a month in a Roth IRA between the ages of 27 and 67 (which is full retirement age for Social Security if you were born in 1960 or later). If your portfolio generates an average annual return of 8%, which is slightly below the stock market average, you’re looking at almost $1.1 million. But if you wait even five years to start investing that $350 a month, your balance at age 67 drops to about $724,000.

Of course, $724,000 is a decent amount in itself. But if you want to retire with more, then it’s important to push yourself to start saving early in your career.

2. They invest their money in stocks for supercharged growth

If you play it safe in your Roth IRA, it won’t do you much good. While stocks carry inherent risks, if you don’t feature them in your retirement portfolio, you’re taking on another risk: not meeting your savings goals.

We just saw that investing $350 per month for 40 years could save you nearly $1.1 million at an average annual return of 8%. If you reduce stocks and keep a more even mix of stocks and bonds, you might end up with a 6% return on your portfolio. That means your balance at age 67 is $650,000 instead of $1.1 million.

3, They take advantage of Roth conversions for future tax benefits

Roth IRAs offer the benefits of tax-free investment earnings and withdrawals. They also do not impose required minimum distributions, giving you the freedom to manage your savings as you see fit.

It’s often (though not always) the case that people who are able to contribute handsomely to a Roth IRA earn too much money to directly fund these accounts. For the current year, Roth IRA contributions are prohibited for taxpayers filing as individuals earning more than $161,000 or married couples filing jointly earning more than $240,000.

However, it is possible to contribute to a traditional IRA and convert it to a Roth as you go. While the tax burden increases at the time of conversion, you will then be able to enjoy tax-free earnings in later years.

Retiring with a $1 million Roth IRA is possible if you work strategically toward that goal. Use these tips to follow in the footsteps of those starting retirement with a seven-figure nest egg.