How Does an IRA Grow?
Contributions The most obvious source of growth in your IRA is your contributions. Individuals are allowed to contribute up to $5,000 a year to an IRA, and that limit gets higher every year. Keeping up your contributions is a great way to make sure that your IRA grows in value. Even if you don’t earn any interest at all on the money, after 30 years, you’ll have $150,000 if you invest $5,000 each year. Investments–CDs and Money Market Funds The types of investments you choose for your IRA will determine the rest of its growth. If you choose to invest your IRA money in CDs or money market funds, you will simply earn interest on the money, just as you would in a regular savings account. There will be little or no risk of losing money, but the amount of interest you can earn in “safe” vehicles like CDs is usually not enough to even keep pace with inflation. About 4 to 5 percent a year is likely the most growth you can hope for with CDs. At 5 percent interest, $5,000 invested today will on
