As long as you fulfill certain requirements, a Roth IRA is a retirement savings account that enables you to deposit after-tax money for 20 years, which grows tax-free, and allows you to withdraw money tax-free.
However, a variety of circumstances affect how much your Roth IRA will increase in value in 20 years.
Estimated Account Balance After 20 Years Around $250,000
These elements include your annual contribution amount, the rate of return on your assets, and the age at which you begin taking withdrawals.
The S&P 500 index, a popular benchmark for the US stock market, has an annual rate of return that is typically around 10%.
If you make annual contributions of $5,000 to a Roth IRA and receive an average annual return of 10%, your account balance will be worth somewhere around $250,000 after 20 years.
Your investments’ real rate of return will change from year to year. Your account balance can increase more slowly in a down market for stocks.
However, the stock market has traditionally trended upward over the long run, so you may anticipate your Roth IRA to increase dramatically over time.
Read more: Understanding IRA: Tax-Advantaged Retirement Accounts For All Ages
Rebalancing Your Portfolio For Retirement Planning
It is crucial to select investments that are suitable for your age and risk tolerance. You should also routinely rebalance your portfolio, which may entail removing higher-risk assets as you come closer to retirement.
A Roth IRA is a low-risk choice if you’re saving for retirement because it offers tax-free growth and withdrawals as well as the possibility of large gain over time.
You should be aware that you must wait until you are 59 years and six months old in order to withdraw funds from your Roth IRA without incurring penalties.
This regulation has a few exceptions, such as when you utilize the funds to cover first-time home purchases or certain educational costs.
Read more: Retirement: When To Start Withdrawing On Tax-Free Basis Through Roth IRA?