Can $5000 IRA Contributions Really Add Up?

A wise person once said that humans tend to over-estimate what they can accomplish in the short-term and under-estimate what they can accomplish in the long-term. This holds very true for IRA contributions.

IRAs offer a number of benefits:

  • Regular savings
  • Potential tax-deductible contributions (depending on income levels and other retirement plan participation)
  • Tax-deferred compounding
  • Potential tax-free distributions (in the case of Roth IRAs)

It can be easy to put off or fail to make contributions to an IRA. Retirement may seem like a long way off and $5000 may not sound like a lot of money to save. But look at how these contributions can accumulate.

Year

Total Contributions

IRA Value at 6% earnings

IRA value at 8% earnings
1
$5,000
$5,000

$5,000
2
$10,000
$10,300

$10,400
3
$15,000
$15,918

$16,232
4
$20,000
$21,873

$22,531
5
$25,000
$28,185

$29,333
10
$50,000
$65,904

$72,433
15
$75,000
$116,380

$135,761
20
$100,000
$183,928

$228,810
30
$150,000
$395,291

$566,416
Taxes Due at 28%
- $68,681

- $116,596
Net After Tax
$326,610

$449,820

No one can accurately predict what level of earnings you may earn on your investments. It may be difficult to foresee what the future tax laws will be. However, using IRAs as part of your retirement planning strategy can help you have the type of financially secure retirement you desire.