Potential Earnings From a Roth IRA and How to Set One Up

Justin Doolan
Aug 31, 2023
4 min read

This article is not investment advice. Just simple math and the beauty of compound interest. Please talk to a certified financial advisor/planner for personal investment advice catered to your individual goals. With that out of the way let’s get into some simple math and how much a Roth IRA can do for you.

Some Quick Items

A Roth IRA is an individual retirement account that uses post-tax dollars. This means that all gains are tax-free when you withdraw from it at the age of at least 59 and a half. This type of account has max on per-year contribution of $6500 if you are below 50 but once you are above 50 you can contribute $7500 per year. The contribution limit is $6,500 or $7,500 if you're 50-plus. The Roth IRA income limits for 2023 are less than $153,000 for single tax filers and less than $228,000 for those married and filing jointly.

How much money you can make by age

With these amounts of money you contribute you can let compound interest can play a heavy role in providing a lovely retirement given enough time.

Starting out really strong at 18 years old being able to max out a Roth IRA every year until you are 59. Let’s assume the fund you choose goes up 7% per year. You will have a nest egg of $1.49 million to retire on. Your tax savings will be $543K. If we let that cook for another five years without touching it the nest egg will be $2.13 million. If you wait until 69 years old, you will have $3.03 million. After the cost of inflation that will be a very comfortable retirement. If we only contribute $1,000 per year towards it at 64 you will have $328K. If we put $6,500 one year and never touch it again, we will have $146K. This is a 2246% increase on the original money at 64 years old. Time is your best friend.

We lost the best decade of our lives of compound growth, but we can still get to a pleasant retirement. If we max out the Roth IRA up until 59, we will have $657K to retire on. This will mean if you withdraw 3% per year and let it maintain its growth you will be able to withdraw $19,710 per year. With a paid-off property (hopefully) it is plenty to retire on for a single person. Ten years later, we will have $1.39 million. A pretty nice number.

39 (filing jointly)

We are pretty darn late to the party, but we can still have a Roth IRA to maintain our lifestyle if it hasn’t inflated too badly. At 39 years old, we can retire at 59 but we will need another source of income, or we need to have incredibly low expenses. It will be $285K per Roth IRA. $570K in total means we can pull a combined $1,410 a month Not nearly enough to have this be your only source of retirement to live comfortably. Push it back five years, we will have a combined $880k in retirement across two accounts. We can pull $2,154 per month. Once again, a hard combined number to live on. Nearly impossible with all the bills you will have to pay. Five more years and we get to a more comfortable place. Still not amazing but being able to have $1.31 million in a combined retirement income means we can pull $3,262 per month during retirement. You won’t be traveling all over the world on that but with low expenses, it can be done.

49(filing jointly)

You are late. Very late. You lost three decades of compound growth and retirement at 59 is impossible starting at zero. You will have $96.1K to retire on per IRA. $192K means you can pull $580 per month. Very difficult to do anything with that. Let it grow for 10 more years means you will have $570K in total and you will be able to pull $1,726 per month. 72 years old you will be able to pull out $2,306 a month.

56(filing jointly)

How big of a nest egg can we make when we retire at 62 years old? We have some more forms of income but what if we never knew what a Roth IRA was until 56 years old? Being able to contribute $7,500 per year you will have $53,650 in the account. $107,300 total. If you leave that in there for five more years you will have $118,377. $236,754 in the total retirement account at 67 years old. Withdrawing 3% per year and letting it sustain would give you an extra $591.88 per month.

How to set one up

This leaves the question of how to set one up. Unfortunately, this doesn’t get taught in schools, I had to look up a YouTube video for setting one up. I will try to explain it just as well.

Vanguard is the one I personally use, and it is not too bad. Tap this link, VANGUARD and it should transport you to a page like this:

You want to click the personal investors' button. This should transport you into a page like this:

Click on open an account button. Which should take you to a page like this:

Click on the selection that describes you. A majority of people will click on Open a new account with money from my bank. This should take you to a screen like this(you can also watch the short video on this screen too once you select) click continue and here we are: