The Roth IRA is one of the most attractive and potentially valuable ways to save for a comfortable retirement. As long as you follow the rules, you can enjoy tax-free growth in your IRA, and tax-free withdrawals once you retire. How fast your Roth IRA balance grows depends on a number of factors, including the investments you choose and how much you invest each year.
The IRS sets the limits for contributions to a Roth IRA, and it is important to review those limits and not exceed them. For 2011, you can invest up to $5,000 in your Roth IRA. If you are 50 years of age or older, you can invest an extra $1,000, for a total contribution limit of $6,000. If you are able to max out your Roth IRA contribution each year, your balance can grow much faster than if you contribute only a small amount each year.
One of the hallmarks of the Roth IRA is its tax-free growth. The money you put into a Roth IRA is not subject to current taxation, and when you take the money out in retirement you are not taxed either. The ability to have the money grow tax-free is very advantageous, since ongoing taxes can really eat into your return. Having the money grow tax-free can boost your return and help your money grow faster than it otherwise would have.
How fast your Roth IRA grows is dependent on the performance of the investments within that account. The Roth IRA itself is simply a shell structure. Within that shell structure you can choose a number of investment options, from individual stocks to widely diversified funds of stocks, bonds and fixed income securities. The types of investments you choose depends on a number of factors, including your own tolerance for risk and how far you are from retirement. If you have decades to go before retirement, you can afford to grow your funds with stocks, but if you are getting ready to retire you might want to keep your stock holdings and your risk to a minimum.
If you want your Roth IRA to grow and provide enough income for you in retirement, you need to keep careful track of how your investments are doing each year. You should perform a portfolio analysis each year to compare the performance of your own Roth IRA funds with what you could have achieved had you simply invested in an index fund. This type of comparison makes it easy to see how you are doing. If your own stock funds are not performing as well as the simple index, you can save money by moving your funds into a low-cost index fund and letting the money grow that way.
Based in Pennsylvania, Bonnie Conrad has been working as a professional freelance writer since 2003. Her work can be seen on Credit Factor, Constant Content and a number of other websites. Conrad also works full-time as a computer technician and loves to write about a number of technician topics. She studied computer technology and business administration at Harrisburg Area Community College.