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average roth ira return

A Roth IRA is a smart way to grow your savings for the future. These investment accounts offer tax-free income when you retire. Of course, any return you see on a Roth IRA account depends on the investments you put into it but historically these accounts have, on average, achieved between a 7% and 10% return. Here’s what you need to know about the average Roth IRA return and how it can help you maximize your retirement savings. 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 IRAs or  401(k)s; with those accounts, you’ll have to pay taxes when you withdraw the funds.

The 2022 contribution limits for Roth IRAs are unchanged from 2021. You’re allowed to contribute up to $6,000 per year, or $7,000 if you’re over 50. For 2023, this limit is receiving a $500 increase to $6,500. Those over 50 can still contribute another $1,000, pushing the catch-up limit to $7,500.

There are income limits for Roth IRAs, though, Contribution eligibility depends on your modified 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 2022 and 2023:

Roth IRA Income Limits for 2022 and 2023
Filing Status 2022 MAGI Limits 2023 MAGI Limits
Single or Head of Household $129,000 to $144,000 $138,000 to $153,000
Married Filing Jointly or Qualifying Widow $204,000 to $214,000 $218,000 to $228,000
Married Filing Separately Up to $10,000 Up to $10,000

How a Roth IRA Earns Interest

average roth ira return

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.

Roth IRAs earn returns by compounding, which helps your money grow more quickly. Whenever your investments earn a dividend or grow in size, that amount goes towards your account balance. Then you earn returns on those returns, and so on and so forth. That means your money will continue to grow regardless of whether you contribute extra money or not.

There are several factors that will impact how your money grows in a Roth IRA, including how diversified your portfolio is, what is your timeline for retiring, and how much risk are you willing to take on. That said, Roth IRA accounts have historically delivered between 7% and 10% average annual returns.

Let’s say you open a Roth IRA and contribute the maximum amount each year. If the contribution limit remains $6,000 per year for those under 50, you’d amass $83,095 (assuming a 7% growth rate) after 10 years. After 30 years, you would accumulate over $500,000.

On the other hand, if you decided to put your money in a savings account that didn’t yield interest, you would only have $60,000 after 10 years ($6,000 multiplied by 10). To calculate the growth of your contributions, check out SmartAsset’s free 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, 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 a broker, 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 a robo-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 EFTs 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 and historically deliver between 7% and 10% in average annual returns. 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

average roth ira return

  • Consider working with a financial advisor to help you meet your goals for retirement. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Avoid becoming one of the Americans who hasn’t saved enough for retirement by making wise choices now. Researching Roth IRAs to find a suitable investment option for your needs is a step in the right direction.

Photo credit: ©iStock.com/jxfzsy, ©iStock.com/Kameleon007, ©iStock.com/skynesher

Ashley Kilroy Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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