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How a Roth IRA Grows Over Time


A Roth IRA can be a useful tool for accumulating the funds needed to pay for a comfortable lifestyle in retirement. That’s because it permits growth without owing taxes on investment gains, and also allows savers to withdraw funds in retirement without paying taxes on their withdrawals. Three things generate Roth IRA growth. Those are your contributions, earnings from interest and dividends on investments and increases in the value of assets purchased and held in the Roth IRA.

A financial advisor can help you use a Roth IRA for your retirement plan.

Roth IRA Basics

A Roth IRA is a retirement account you fund with after-tax dollars. Later on, you can take money from the account without owing taxes as long as you have had the account for at least five years and are past age 59.5.

There is an annual maximum on Roth IRA contributions. For 2023, the limit is $6,500 for retirement savers younger than 50. Roth IRAs are also subject to income limitations that mean higher-earning retirement savers can’t contribute to them at all. For 2023, the top income you can have if you want to contribute any money to a Roth IRA is $153,000 for individuals and $228,000 for married couples filing taxes jointly.

Roth IRAs are free of the traditional IRA’s mandate to take required minimum distributions (RMDs) once you reach a certain age. This age is 73 for people who turn 72 in 2023. Without RMDs, Roth IRA owners are free to leave their money in to grow tax-free for a longer period of time.

How a Roth IRA Grows

how does a roth ira grow

Roth IRAs historically return an average of 7% to 10% per year. However, this return doesn’t come from the Roth IRA itself. These accounts are just tax-advantaged places to keep funds. The growth is generated by investments made with funds in the account. The rate of growth depends on where the funds are invested, as well as other factors including fees.

Growth in a Roth IRA comes from three sources: contributions, interest and dividends and price appreciation. Here is more on these three factors:


Your contributions will be the main source of growth in the size of your IRA account in the early years. For instance, say you are 35 when you open a Roth IRA in 2023 with an initial $5,000. You then contribute $6,500 annually while earning 7% annual returns until age 65. In this hypothetical scenario, in 2040 your combined contributions of $117,000 will still be slightly more than the total earnings of $115,893.

Interest and Dividends

As time goes by, growth from interest and dividends becomes increasingly important for adding to your Roth IRA’s value. About 18 years in, this trend begins and accelerates from that point.

By 2052, when you reach 65 and retire, $452,056 of the total account value of $652,056 will be from interest. Less than a third will have come from your contributions.

Compound interest is the key to this phenomenon. As you leave the interest you have accumulated in the Roth IRA, it is invested and earns more interest. After many years, compounding interest becomes the dominant force propelling growth in your Roth IRA.


Price appreciation is another source of potential growth in your Roth IRA. Bank certificates of deposit, interest-earning bonds, dividend-paying stocks and other income-generating investments such as dividend funds are part of many Roth IRA portfolios. But other common Roth IRA investments, such as common stocks, do not pay dividends or interest.

Gains to your Roth IRA from these investments result from price appreciation or capital appreciation. You buy them at one price and sell them later for a higher price. Over long periods of time, such as a few decades, investments in stocks have historically outperformed investments in bonds and other income investments.

Price appreciation from stock investments represent an important part of the overall 7% to 10% average growth shown by Roth IRAs in the past. Because stock market valuations fluctuate less predictably than interest returns, they are more difficult to accurately predict, but they can still be expected to be important for your Roth IRA’s growth.

The Bottom Line

how does a roth ira grow

Growth of a Roth IRA comes from three sources: contributions, interest and dividends and price appreciation of the assets held in the account. Of the three, contributions are most important early on, interest and dividends usually are more important later on, and price appreciation is historically the biggest factor in long-term growth, although this factor is harder to reliably quantify in advance.

Tips for Retirement Savings

  • You can turn to a financial advisor for help devising a retirement saving strategy that uses Roth IRAs and other tools.   SmartAsset’s free tool matches you with up to three vetted financial advisors in 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.
  • Every individual’s retirement plan is different, but you can learn about the likely outcome of your own specific approach to saving and investing for retirement by using SmartAsset’s Investment Return and Growth Calculator. Just type in three bits of information: the amount of money you have right now, the amount and frequency of additional contributions, the anticipated rate of return and the number of years you’ll let your investment growth. The calculator will tell you how much your savings will amount to at the end of that time.

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