Roth IRA Savings Account Statistics | Unbiased (2024)

FAQs

Roth IRA Savings Account Statistics | Unbiased? ›

While your Roth IRA does not earn interest on its own (like, say, a savings account), the investments within it do earn interest. According to SmartAsset, the average Roth IRA rate of return was between 7% and 10% in 2023.

Ideally, you should keep your emergency fund in a regular savings account (where it is easily accessible) and use your Roth IRA for long-term investments. But if the alternative is not contributing to an IRA at all, it's probably a smart move to keep your emergency money in a Roth IRA.

Historically, the average annual return for a Roth IRA or any other type of account invested heavily in stocks can range from 7% to 10%. That estimated return assumes a diversified portfolio over a long-term investment horizon, similar to the stock market's historical performance.

According to research by the Investment Company Institute, just 24.6% of U.S. households -- or 32.3 million -- contributed to a Roth IRA in 2022. That leaves more than 75% of American households missing out on Roth IRA contributions.

Historically, with a properly diversified portfolio, an investor can expect anywhere between 7% to 10% average annual returns. Time horizon, risk tolerance, and the overall mix are all important factors to consider when trying to project growth.

One disadvantage of the Roth IRA is that you can't contribute to one if you make too much money. The limits are based on your modified adjusted gross income (MAGI) and tax filing status.

This rule for Roth IRA distributions stipulates that five years must pass after the tax year of your first Roth IRA contribution before you can withdraw the earnings from the account tax-free. Keep in mind that the five-year clock begins ticking on Jan. 1 of the year you made your first contribution to the account.

In recent decades, with the advent of the Roth IRA and relaxed restrictions on IRA rollovers, ultrawealthy Americans have reportedly built tax-sheltered accounts worth many millions—or even billions—of dollars.

Therefore, maxing out your Roth IRA can benefit you, even with a lower income. Because contributions are made with after-tax dollars, qualified withdrawals in retirement are tax-free, and can thereby help you reduce your long-term tax burden.

A Roth IRA can be a good savings option for those who expect to be in a higher tax bracket in the future, making tax-free withdrawals even more advantageous. However, there are income limitations to opening a Roth IRA, so not everyone will be eligible for this type of retirement account.

How much does a Roth grow in 20 years? ›

If you contribute 5,000 dollars per year to a Roth IRA and earn an average annual return of 10 percent, your account balance will be worth a figure in the region of 250,000 dollars after 20 years.

There are two primary reasons your IRA may not be growing. First, you can only contribute a certain amount of money to your IRA each year. Once you hit that limit, your account cannot grow via personal contributions until the following year. This may also mean you are not making contributions when you believe you were.

Of course, any returns you see in a Roth IRA account depend on the investments you put your assets into. Generally speaking, these accounts, on average, can achieve annual returns of between 7% and 10%, depending on their underlying investments.

Overall, converting to a Roth IRA might give you greater flexibility in managing RMDs and potentially cut your tax bill in retirement, but be sure to consult a qualified tax advisor and financial planner before making the move, and work with a tax advisor each year if you choose to put into action a multiyear ...

IRA Savings Accounts. Many people think of IRAs as brokerage accounts that help grow their retirement funds through investing. But, there are also savings-type options. They may be most attractive to those close to retirement or who want to diversify their portfolios with lower risk options.

The Bottom Line. In a 401(k) vs. Roth IRA matchup, a Roth IRA can be a better choice than a 401(k) retirement plan, as it typically offers more investment options and greater tax benefits. It may be especially useful if you think you'll be in a higher tax bracket later on.