When it comes to retirement planning, the best strategy is uniquely different for every person and the process can be confusing. That’s why there are so many financial planners out there. However, setting up a nest egg for your nonworking years can be easily created and passively maintained if you stick to tried and true saving and investing techniques.
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Take it from someone who quit his job as a middle school math teacher and became financially independent at the young age of 33. Steve Chen, personal finance coach and founder of Call to Leap, shared a recent 45-second Instagram tutorial where he laid down exactly how to become a millionaire in retirement by investing consistently in a Roth individual retirement account (IRA) and taking advantage of the “Eighth Wonder of the World,” the basic wealth-building strategy of compound interest. Obviously, age plays a factor as it determines how long you have to invest and grow your money.
Here are Chen’s four actionable steps to grow your net worth through a Roth IRA.
Choose a Reputable Brokerage Firm
Chen recommends Vanguard, Fidelity or Schwab, however, there are many great brokerage companies and online trading platforms that offer advice and accounts specifically geared toward the investing novice.
According to MarketBeat, the best brokerage accounts for beginners should have a user-friendly interface, offer educational resources, and provide diverse investment options. This helps new investors build confidence and gradually develop their investing skills.
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Open a Roth IRA
Brokerage sites will have clearly identified call-to-action (CTA) buttons that you’ll simply have to click. Once you’ve hit the Roth IRA to open a new account, you’ll need to fill out a form with some basic personal information, including your name, birth date, Social Security number, contact info, and possibly a driver’s license or some other photo identification.
Connect your Checking Account To Set Up a Monthly Deposit
On your new account dashboard, hit the transfer button to link your checking account and fill out how much and how often you want to fund your Roth IRA. Specifically, you want $583 going from your checking account to your Roth IRA every month — we’ll explain this shortly as you keep reading. Make sure you click the recurring option instead of a one-time transfer.
Although they have income limits that determine if you can contribute — $146,000 to $161,000 for singles and heads of households and $230,000 to $240,000 for married couples filing jointly are the phase out ranges for 2024 — the average person is allowed to invest up to $7,000 to a Roth IRA in 2024 and 2025. Also, an additional $1,000 catch-up contribution if you’re 50 or older. The $583 that Chen specifies amounts to a hair under $7,000 for the year — $6,996.
Fund Your Roth IRA
Growing a Roth IRA is a long game, favoring the patient. So, your Roth account won’t grow much if you fund it sporadically and have a restless disposition. You have to adopt a game plan or a clear strategy like Chen’s, which establishes how much to contribute and how often if you want to become a Roth IRA millionaire when you retire. You also have to allocate your contributions and hold on to them for many years.
This means buying an S&P 500 exchange-traded fund (ETF), which allows you to buy dozens, hundreds, or thousands of securities within one single investment. To do this, return to your dashboard, click on the Quotes CTA button, and choose a reliable performing fund, like the Chen-recommended SPY (Standard & Poor), VOO (Vanguard), IVV (iShares Core) or FXAIX (Fidelity).
Compound interest encourages and rewards individuals to start investing early to maximize growth over decades. According to Chen, if you consistently contribute the maximum allowable amount to your Roth IRA over 40 years, you should have over $3 million, given an average stock market return. The S&P 500 has gained about 10.5% annually since its introduction in 1957, per Business Insider.
“But that’s not the crazy part,” Chen said. “You would have only put in $280,000 of your own money and grew another $2.8 million of free money due to compound interest.”
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This article originally appeared on GOBankingRates.com: 4 Steps To Become a Roth IRA Millionaire According to Money Expert Steve Chen
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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