Roth IRA Contribution Limits & How Much to Invest for Retirement

Roth IRAs provide investors with a great way to save for retirement. By using a Roth IRA, you can get your taxes out-of-the-way before you hit retirement. Many people wonder exactly how much money they should put into their Roth IRA. Here are the basics of how much you should consider investing in your retirement account.

Contribution Limits

In order to determine how much you should put in, you first need to understand the contribution limits that come with this type of account. The maximum amount of money that you can put into a Roth IRA every year is $5000. This number changes to $6000 after you turn 50. In addition to this, there are also income requirements. If you are single you can contribute the full $5000 only if you make less than $95,000 per year. If you make between $95,000 and $120,000, you can contribute a partial amount. As a couple, you have to make less than $166,000 in order to contribute fully. If you make between $166,000 and $176,000 you are eligible to make a partial contribution.

Max Out The Contribution

As a general rule, you will want to try and max out your contribution every single year. While it might not seem very important to set aside $5000 every year for your retirement when you are young, is actually crucial to start right away. When you think about how much money that is, in reality, it is not very much. By the time you get to retirement age, there is a good chance that you will not be able to live off the amount of money even if you do contribute $5000 every year. Therefore, if you contribute less than that, your chances of being able to survive on the amount of money are very minimal.

In order to put this in perspective, here are a few things to consider. If you start a Roth IRA when you are 25, this means that you have 34 years until you would be eligible to withdraw money from your Roth IRA. At that point, you'd be 59 1/2 and eligible to withdraw. If you invested $5000 per year, without any returns, this amount of money would be $170,000. If you earned a return of 8% per year, you would be able to have over $850,000 in your account. Depending on what you invest in, you may or may not be able to make that much per year. Many people would not be able to live comfortably on only $850,000 for retirement. Most people believe that they should at least try to reach $1 million. However, with inflation, even that will most likely not be enough to live comfortably upon retirement.

If you only contributed half of the maximum at $2500 per year, and made the same return on your investment, you would only be able to have $428,000 in your account. Therefore, it is essential to start saving early and putting as much into your account as possible.