A Roth IRA is a type of retirement account that allows you to save money for the future and benefit from tax-free growth. Unlike traditional IRAs, Roth IRAs are funded with after-tax dollars, meaning that contributions are not tax-deductible. However, once you start withdrawing funds, the money is tax-free. The real power of a Roth IRA comes from its ability to capitalize on interest and dividends, allowing your account balance to increase even when you don't make financial contributions.
On average, Roth IRAs offer between 7% and 10% of annual returns, making them an attractive option for long-term savings.Whenever investments generate interest or dividends, that amount is added to the account balance. Account owners then earn interest on additional interest and dividends, a process that continues over and over again. This allows your money to grow regardless of whether you contribute extra money or not. Contributing to a traditional IRA can create a current tax deduction, in addition to providing tax-deferred growth.When you reach 59 ½, you can receive distributions from your Roth IRA without paying taxes on your contributions or earnings.
To maximize the growth of your Roth IRA each year, it's important to make regular contributions and invest wisely. The stock market can be volatile and past returns don't guarantee future returns, so it's impossible to predict how much your account will grow.If you're looking for an alternative way to save for retirement, consider a traditional IRA. Use this traditional IRA calculator to see how much you could save with a traditional IRA.
