What Is an Average Roth IRA Return? (2024)

What Is an Average Roth IRA Return? (1)

A Roth IRA is a retirement savings investment account that offers tax-free gains on the money you invest in it. This means that when you start withdrawing from a Roth IRA in retirement, the distributions you take will be tax-free. This is in direct opposition to how a traditional IRA works, as these instead offer tax deferment benefits, meaning you’ll save on your taxable income now, but will pay taxes on your withdrawals in retirement. 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. If you want help with making the most of your Roth IRA, consider finding a financial advisor.

How a Roth IRA Works

A Roth IRA is an individual retirement account that you contribute to using after-tax dollars. This setup allows the account holder to take tax-free withdrawals of investment earnings once they have had the account for five years and are over the age of 59.5. In this way, Roth IRAs are the inverse of tax-deferred traditional IRAsand401(k)s, as these accounts require you to pay taxes when you withdraw the funds.

The 2024 contribution limits for Roth IRAs went up from those in 2023. You’re allowed to contribute up to $7,000 to an IRA in 2024, plus an extra $1,000 catch-up contribution if you’re over 50. Catch-up contributions allow those who are closer to retirement to contribute just a bit more to their IRAs as they get closer to retiring. For tax year 2023, the IRS allows you to contribute up to $6,500 to an IRA, plus a $1,000 catch-up contribution.

There are income limits for Roth IRAs, though. Contribution eligibility depends on yourmodified adjusted gross income (MAGI). You can contribute up to the limit as long as your MAGI is less than the lower limit, and it gets phased out until you reach the top limit.Beyond the income range, you will not be able to make any more contributions.

The table below breaks down the Roth IRA income limits for 2024 and 2023:

Roth IRA Income Limits for 2024 and 2023

Filing Status2024 MAGI Limits2023 MAGI Limits
Single or Head of Household$146,000 to $161,000$138,000 to $153,000
Married Filing Jointly or Qualifying Widow$230,000 to $240,000$218,000 to $228,000
Married Filing SeparatelyUp to $10,000Up to $10,000

How a Roth IRA Earns Interest

What Is an Average Roth IRA Return? (2)

Unlike traditional savings accounts, Roth IRAs don’t earn returns on the account alone. Essentially, a Roth IRA account starts out as an empty investment basket — meaning you won’t earn any returns until you choose investments to house within the account itself.

As you earn returns in your Roth IRA, these can compound over time like any other investment. This can have a major impact over multiple years. Whenever your investments earn a dividend or grow in size, that amount goes toward your account balance. Then you earn returns on those returns, and so on. That means your money should continue to grow regardless of whether you contribute extra money or not.

Several factors will impact how your money grows in a Roth IRA, including how diversified your portfolio is, what is yourtimeline for retiring and how muchrisk are you willing to take on. While there isn’t necessarily a historical rate of return for Roth IRAs – remember, they are types of accounts, not investments – annual returns for typical retirement portfolios can range from 7% to over 10%. For example, a 60/40 portfolio (60% equities, 40% bonds) has averaged an annual growth rate of 8.77%, according to data from Vanguard.

Meanwhile, investing 90% of your assets in equities and only 10% in bonds historically produces a return of nearly 10%, although this may be too aggressive of an asset allocation for savers nearing retirement.

Let’s say you open a Roth IRA and contribute the maximum amount each year. If the base contribution limit remains at $7,000 per year, you’d amass over $100,000 (assuming a 8.77% annual growth rate) after 10 years. After 30 years,you would accumulate over $900,000.

On the other hand, if you decided to put your money in a savings account that didn’t yield interest, you would only have $70,000 after 10 years ($6,000 multiplied by 10). To calculate the growth of your contributions, check out SmartAsset’s investment calculator.

How to Maximize Your Roth IRA Returns

Just because a Roth IRA helps you save for retirement doesn’t mean that all accounts are on equal footing. Where you choose to open an account can have a big impact on the investment selections you have. This will then affect your long-term returns. For example, a traditional bank may only offer Roth IRAs as a certificate of deposit (CD), which typically has a lower rate of return.

For the widest variety of investment options, it may be best to open an IRA through a broker. With abroker, you can select your investments based on both your financial objectives and risk tolerance. These investments could include a mix of stocks, bonds, index funds and exchange-traded funds (ETFs).

If you prefer a more hands-off approach, consider opening a Roth IRA account with arobo-advisor, which uses software to manage your investments online. These types of accounts usually come with lower fees as well. That’s because no human advisors interact with your portfolio. Instead, it automatically runs through computer algorithms that continually adjust for your age, timeline and risk tolerance. Many robo-advisors will use index funds or ETFs for your investment mix in your Roth account.

Bottom Line

Roth IRAs are a popular retirement account choice for a reason. It’s because they’re easy to open with an online broker can deliver between 7% and 10% in average annual returns depending on how you invest. Roth IRAs harness the advantages of compounding, which means even small contributions can grow significantly over time. That’s why is important to open a Roth IRA sooner rather than later. That means you’ll be more ready for retirement the longer your money has to grow.

Tips for Investing for Retirement

What Is an Average Roth IRA Return? (3)
  • A financial advisor can help you manage your investment portfolio for retirement Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • SmartAsset’s retirement calculator can show you if you’re on pace to meet your savings goals.

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What Is an Average Roth IRA Return? (2024)


What Is an Average Roth IRA Return? ›

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.

How much does the average Roth IRA return? ›

Roth IRAs aren't investments and don't pay interest or earn interest, but the investments held within Roth IRAs may earn a return over time. Depending on your investment choices, you may be able to earn an average annual return between 7% and 10%.

How much will my Roth IRA 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.

What is a good amount to have in Roth IRA? ›

If you can afford to contribute around $500 a month without neglecting bills or yourself, go for it! Otherwise, you can set yourself up for success if you can set aside about 20 percent of your income for long-term saving and investment goals like retirement. Prioritize high-interest debt, but don't ignore other goals.

Does money in a Roth IRA grow? ›

Roth IRAs grow through a combination of annual contributions and investment earnings. Roth IRA growth depends on your investment choices, your time horizon and other factors.

What is a good ROI for a Roth IRA? ›

Generally speaking, these accounts, on average, can achieve annual returns of between 7% and 10%, depending on their underlying investments.

Is a Roth IRA better than a 401k? ›

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.

How long does it take to become a millionaire with a Roth IRA? ›

Long-time personal finance columnist Scott Burns writes that by working for four summers starting at age 16, putting the money in a Roth IRA, investing it wisely, and waiting until age 67, it's simple to become a millionaire. 1 That's the 51-year plan. But what if you're not that patient—or that young?

How much should a 25 year old have in a Roth IRA? ›

If you're 25, you should aim to max out your IRA every year. For 2024, a 25-year-old can contribute up to $7,000 to an IRA. It might seem unnecessary to save for retirement at such a young age, but giving your money time to grow is one of the best things you can do for your future self.

Is it worth opening a Roth IRA at 50? ›

Opening or converting to a Roth in your 50s or 60s can be a good choice when: Your income is too high to contribute to a Roth through normal channels. You want to avoid RMDs. You want to leave tax-free money to your heirs.

What income is too high for Roth IRA? ›

The income limits on Roth contributions increased for 2024, which means savers with income at or below $161,000 ($240,000 for married couples filing jointly) can contribute to a Roth IRA.

Can I put $20000 in a Roth IRA? ›

Low contribution limit–The annual IRA contribution limit for the 2024 tax year is $7,000 for those under the age of 50 or $8,000 for those 50 and older. In comparison, the 401(k) contribution limit is $23,000 a year. Income limit–The income limit disqualifies high income earners from participating in Roth IRAs.

Is now a good time to open a Roth IRA? ›

The three times that are generally recommended are when you're young and at the beginning of your career, when your income dips, and before income tax rates increase. Using annual allowances as early as possible gives your money more time to grow in value.

How are Roth IRAs used by the rich? ›

Cash Value. Despite the nickname, the “Rich Person's Roth” isn't a retirement account at all. Instead, it's a cash value life insurance policy that offers tax-free earnings on investments as well as tax-free withdrawals.

How does a Roth IRA work for dummies? ›

With Roth IRA, you pay your usual tax and then fund your account. So you'll pay slightly more tax throughout your life, but after you retire all the gains are yours! The allowances and limits for both these types are the same, and you can even have both if you decide to do so.

Should I max out Roth IRA every year? ›

By maxing out your contributions each year and paying taxes at your current tax rate, you're eliminating the possibility of paying an even higher rate when you begin making withdrawals. Just as you diversify your investments, this move diversifies your future tax exposure.

How much does a Roth IRA grow yearly? ›

You can select from any number of investment vehicles, such as cash, bonds, stocks, ETFs (exchange-traded funds), mutual funds, real estate, or even a small business. Historically, with a properly diversified portfolio, an investor can expect anywhere between 7% to 10% average annual returns.

How much should I have in my Roth IRA by 30? ›

You might come across various guidelines when researching how much you should have saved for your retirement in your 30s. Two popular ones are: About ½ to 1 ½ times your income by age 30. 1 to 2 times your income by age 35.

Is a Roth IRA worth it? ›

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 should I put in my Roth IRA per year? ›

Fidelity suggests saving at least 15% of your pretax income for retirement each year (including any employer match). That amount can be spread out among multiple retirement accounts, including a Roth IRA (where you contribute post-tax money), a traditional IRA, a 401(k) or a 403(b).

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