An IRA worth $1 million or more must be a product of very early retirement planning and very astute investing, right?
Compounding and great yields certainly count, but they aren’t the only reasons behind seven-figure IRAs.
According to a recent report from the federal Government Accountability Office (GAO), about 1% of IRA owners have $1 million or more in their accounts.
In this recent snapshot, the GAO estimated that there were 7,952 Americans whose IRAs held $5-10 million and 314 IRA owners whose accounts contained more than $25 million!
Where is all this money coming from or being generated???
Often, the major factor in creating a seven-figure IRA balance isn’t the IRA’s earnings…
Instead, it is a lump sum rolled over into the IRA from a workplace retirement plan. If an employee has contributed to a 401(k) or 403(b) for decades (perhaps with employer matches along the way), the result can be a six-figure asset balance. (The larger annual contribution limits for workplace retirement plans also help to promote large account balances over time.)
An emphasis on equity investing plays a part – the GAO observed that IRA owners who were less risk-averse tended to amass greater IRA balances than more conservative investors.
Lastly, IRA structure is undeniably a factor: the account rules permit the invested assets to grow and compound with taxes deferred.
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