How Your IRA Balance Grows Over Time

Watching a retirement account grow can feel like magic, but the math behind it is pretty ordinary. Your balance today grows at your expected rate of return, and each new contribution you make gets its own runway to grow too. Add those pieces together every year and you get a projected balance at retirement. Here’s how that works, with the same numbers the IRA Calculator uses.

No employer match, just your own money

If you’re used to thinking about a 401(k), the first thing to unlearn with an IRA is the employer match. A 401(k) often gets a boost from your employer matching part of what you put in, which effectively means free money added to your contribution every year. An IRA has no such match. Every dollar in the account, aside from investment growth, came from you.

That doesn’t make an IRA worse, it just means the growth engine is simpler: your starting balance, your annual contribution, and your expected rate of return. There’s no third input to account for, which is part of why the formula below is so compact.

2024 contribution limits

The IRS caps how much you can put into an IRA each year. For 2024, that limit is $7,000 if you’re under 50, or $8,000 if you’re 50 or older thanks to a $1,000 catch-up contribution. Those limits apply across all your traditional and Roth IRAs combined, not per account, so if you have both a traditional and a Roth IRA, your total contributions to the two together still can’t exceed the cap.

The limit tends to rise every year or two to keep pace with inflation, so it’s worth checking the current figure before you max out a contribution. The IRA Calculator defaults its annual contribution field to $7,000 to match the 2024 under-50 limit, but you can change it to whatever fits your situation, including a lower number if maxing out isn’t realistic yet.

The formula

The projection is a standard future-value calculation. It grows your current balance forward at your expected return, then separately grows a stream of equal annual contributions, and adds the two together.

Projected Balance = Current Balance × (1 + r)^n
                   + Annual Contribution × [((1 + r)^n − 1) ÷ r]

Here, r is your expected annual return expressed as a decimal (7% becomes 0.07), and n is the number of years remaining until retirement. The first term is just compound interest on what you already have. The second term is the future value of a series of equal deposits, one made at the end of each year, which is why a contribution made in year one has far longer to compound than one made in year twenty.

Worked examples

Example one: $10,000 balance, $7,000 per year, 7% return, 20 years. Plugging those numbers into the formula grows the existing $10,000 to roughly $38,700 on its own, and the twenty years of $7,000 contributions add the rest. The projected balance comes out to $325,665.29. Of that, $150,000 is money you actually contributed (the $10,000 starting balance plus 20 years of $7,000), and the remaining $175,665.29 is growth from investment returns, more than the contributions themselves.

Example two: $0 balance, $6,000 per year, 8% return, 30 years. Starting from nothing changes the math but not the outcome by much, since a longer time horizon and a higher return rate more than make up for the missing head start. Thirty years of $6,000 contributions total $180,000 out of pocket, yet the projected balance reaches $679,699.27. Nearly three-quarters of that total, about $499,699.27, comes purely from compounding. That gap between contributions and total balance is the clearest illustration of why starting early matters more than starting big.

Traditional vs Roth: what this calculator doesn’t model

Everything above describes the growth math, and that math is identical whether the account is a traditional IRA or a Roth IRA. What differs between the two is how taxes apply, and that’s a separate question from how the balance grows.

With a traditional IRA, contributions are often tax-deductible in the year you make them, which lowers your taxable income now. In exchange, withdrawals in retirement are taxed as ordinary income. With a Roth IRA, it works the other way: you contribute after-tax money today, so there’s no deduction up front, but qualified withdrawals in retirement are entirely tax-free, including all the growth.

The IRA Calculator projects the raw account balance and doesn’t model either tax treatment. That’s a deliberate simplification, not an oversight: the $325,665.29 and $679,699.27 figures above represent the money sitting in the account, not what you’d actually take home after taxes. A traditional IRA’s projected balance overstates your effective spending power somewhat, since a chunk of it is owed to the IRS eventually. A Roth IRA’s projected balance is closer to what you’d actually keep, since qualified withdrawals aren’t taxed at all. Which account type is better for you depends on your current tax bracket versus your expected bracket in retirement, which is a personal finance question well beyond what a growth calculator can answer.

FAQ

Does the calculator account for the annual contribution limit automatically? No. You can type any number into the annual contribution field, including one above the current IRS limit. The $7,000 default matches the 2024 under-50 limit, but the field itself doesn’t enforce a cap, so it’s on you to keep the number realistic for your situation.

Why does the second example end up with more growth from returns than the first, even though it started at $0? Time and rate of return matter more than the starting balance. Thirty years at 8% gives compounding far more room to work than twenty years at 7%, even with no head start, which is why its growth from returns is larger both in dollars and as a share of the final balance.

Should I assume my real return will match the percentage I enter? No, treat it as a planning estimate, not a promise. Historical stock market averages are often used as a rough guide, but actual annual returns vary widely from year to year, and a single sequence of bad early years can change your outcome even if the long-run average holds.

Use the IRA Calculator to run your own numbers.