Leverage your Roth IRA in 2023
The new Roth contribution limits for 2023 are $6500 for someone under 50 years old and $7500 for someone 50 year or older. Although this is only $500 more than last year, it is a game-changer for your financial plan. Here is why:
Every extra penny you can stuff into your Roth IRA has the opportunity to grow tax free, and can be taken out tax-free in retirement when age requirements are met. Let me illustrate how awesome this contribution increase is with a calculation.
If we compare the results of someone who contributes $6k a year from the age of 18-50 then $7k a year from the age of 50-65 to someone who contributes the new numbers of $6.5k and $7.5k respectively for those age ranges (and assuming both average a 10% annual return compounded annually) we see the final results are astonishing.
Total contribution: $291,000
End Value: $5.263 million
End Value: $5.693 million
Although Person 2 only invested $23k more than Person 1. Compound interest did it's job and they were able to see capital gains of about $430k more over the course of their life. The Roth IRA is a valuable tool and it makes sense for most people to maximize their contributions.
Today I used a compound interest calculator investor.gov check it out!
Here is also one from NerdWallet, but it wasn't useful to me today, because the initial investment had to be less than 1 million!