Want to be a Roth IRA millionaire? 3 tips all retirees should know

A Roth IRA can be an incredibly powerful tool for your retirement. Key benefits it can bring you include:

• Once in your Roth IRA, your money can grow tax free for the rest of your life.
• After you've reached age 59 and a half and have had your Roth IRA funded for at least five years, any withdrawals you make from your Roth IRA are completely tax free.
• Your kids can find a path to withdraw a Roth IRA they inherit from you without paying taxes on those withdrawals.

With all those benefits in mind, becoming a Roth IRA millionaire is a wonderful goal to set for yourself. If you want to have a shot of reaching that target, these three tips are important ones for all current and aspiring retirees to know.

No. 1: Start early

People under age 50 can generally contribute up to $7,000 per year to their Roth IRAs. Those aged 50 and up have a "catch-up" contribution amount they can also contribute, bringing their typical limit $8,000.

With limits like that, it's possible to reach millionaire status from your direct contributions to your Roth IRA, but you need to start early to have the best chance of doing so. It will take around 28 years, assuming returns in line with the market's long-run historical levels, for $7,000 per year of contributions to grow to $1,000,000.

No. 2: Take advantage of "backdoor" contributions

As you progress in your career and build your nest egg over time, it might actually get tougher to directly contribute to a Roth IRA. This is because once your income gets larger, your personal contribution limit could start to decrease.

If you're single, your ability to contribute starts to phase out once your modified adjusted gross income above $146,000, If you're married filing jointly, that phase out starts at $230,000. That limit is based not just on your salary but rather on most sources of income.

Get a bonus? It's included. Have a stock get bought out for a gain? That gain gets included. As you get close to those phase out ranges, it may be tough to tell until very late in the year if you're able to contribute.

Fortunately, there's a workaround, known as a backdoor Roth IRA contribution. In essence, you contribute to a Traditional-style IRA, then convert that money to a Roth IRA account. There are no income limits on either Traditional-style IRA contributions or on Roth conversions , so that process can effectively allow higher-income earners to get money into a Roth IRA.

Do note that due to a pro-rata rule, if you have other money inside a Traditional IRA, you might face a higher immediate tax burden on a backdoor Roth IRA than you would on a direct contribution to one. Still, you may decide it could be worth it for the benefits you'd get from a lifetime of tax-free compounding on your money.

No. 3: Your Roth IRA can help keep your post-retirement income in check

If you invest in Traditional-style retirement accounts throughout your career or get a decent employer match, you might find yourself with a fairly hefty nest egg in those accounts once you retire. As awesome as that may seem on the surface, Traditional-style retirement plans are subject to Required Minimum Distributions (RMDs).

RMDs are mandatory withdrawals from those retirement plans, generally taxed as ordinary income . Your RMD amount is based on your age and account balance , not your spending needs. The older you get and the higher your account balance thanks to compounding, the larger those RMDs become. In addition to the direct tax on those RMDs, RMDs can both increase the amount of your Social Security subject to taxes and increase your Medicare Part B and D premiums .

Roth IRAs are not subject to RMDs during the original account owner's lifetime . As a result, the more of your retirement money you get into your Roth IRA, the lower your RMDs will be.

The same conversion rules that allow you to make those backdoor Roth IRA contributions allow you to convert your Traditional retirement account balances to Roth IRAs after you retire. You can't convert the money you're required to withdraw as part of your RMD , but any other amount in your account can be converted. Once converted (with the conversion taxes paid), any additional compounding on that money can be completely tax free – and free from those RMDs for as long as you're alive.

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Get started now

The sooner you get started putting a Roth IRA to work for you, the better your chances are of getting to that $1 million balance. Make today the day you decide to put at least one of these three tips to work for yourself. If you reach millionaire status, you'll certainly be glad you did.

Chuck Saletta has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

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