I want to be an IRA millionaire by the time I retire. Here’s how I plan to get there.

I’ve been using IRAs to invest for retirement for over a decade and I feel like I’m on track to have a million dollar IRA before I retire. And while every investment journey is different and there are quite a few things you can’t fully control, like investment returns, I use three specific strategies to grow my IRA over time. Here’s who they are and why I’m confident they’ll help me retire as an IRA millionaire.

Use the best account type for you

IRAs come in a few different varieties, and the best option for you depends on the type of income you have, your tax situation, and your financial goals.

Image source: Getty Images.

Traditional and Roth IRAs are the most common and allow qualified individuals to save up to $7,000 in 2024 ($8,000 if over 50). Traditional IRA contributions may be eligible for a tax deduction, but the eventual retirement income is taxable. On the other hand, Roth IRA contributions are not deductible, but qualifying withdrawals are completely tax-free.

While there’s a lot to unpack in the traditional vs. Roth, the general idea is that traditional IRAs are often best for those in relatively high tax brackets. nowwhile Roth IRAs are great for those in relatively low tax rates now but who anticipate their tax bracket in retirement to be higher.

In addition, there are two specialized IRAs — the SEP-IRA and the SIMPLE IRA — that are designed for self-employed investors and small businesses. I use a SEP-IRA for my retirement savings. If you qualify, these accounts have much higher contribution limits than traditional or Roth IRAs. For example, the SEP-IRA has a contribution limit in 2024 of 25% of total compensation or $69,000, whichever is less.

Save often and do it automatically

One of the best pieces of advice I give to friends and family when it comes to investing in IRAs is to automate the contribution process. It doesn’t even give you a choice. If you want to contribute $6,000 this year, for example, set up an automatic transfer of $500 from your checking account each month.

If you have to manually press a button to contribute, there are two problems. One, it’s easy to forget and then you have contribution deadlines sneaking up on you. Second, it can be tempting to skip a contribution if you consider it a choice. Automating the process ensures that you will consistently add to your account over time.

Prepare your investments for long-term capitalization

Last but not least, I fill my IRA with (mostly) investments that are designed for slow and steady compounding. Not all of them have to be dividend-paying investments, although they will likely gravitate toward that category as I get closer to retirement and start thinking about income. But in general, I can group my IRA investments into three baskets:

• Index funds: By using index funds, you put your retirement investments on autopilot. And there’s nothing wrong with doing that. Actually, a simple one S&P 500 index fund ca Vanguard S&P 500 ETF (VOO -0.57%) has historically produced annualized total returns of around 10% over long periods.
• Dividend Composers: I own shares of many real estate investment trusts (REITs) and other dividend-paying stocks designed not only to produce income, but to grow that income over time and also provide consistent share price gains.
• Compounders and solid businesses: Berkshire Hathaway (BRK.A 0.74%) (BRK.B 0.86%) it is the largest investment in my IRA right now and is a great example of a business that is designed for strong compounding over time.

My strategy isn’t for everyone, but in general, I think high-growth tech stocks and speculative businesses can certainly have a place in your investment strategy, but not in the accounts you expect to fund your retirement with.

The bottom line

As mentioned, every saver is different. Of course, I have a significant advantage when it comes to being able to use a SEP-IRA, but there are millions of people with self-employment income who may not even know they’re eligible. And of course, it’s not practical or necessary for everyone to fully max out an IRA — for example, if you have a pension plan or a 401(k) with a generous employer at work.

The point is that these are three strategies that I use. They may not be perfect for you, but they are solid ways to ensure that your IRA ultimately gives you the financial security you want in retirement.