How feasible would it be to retire just maxing out a Roth IRA?
Interesting. The answer can be as convoluted/complex as one wishes to make it, or back-of-envelope.  My claim is that if one starts at 21, and deposits 10% of their income each year, they will likely hit a good retirement nest egg. At an 8% return each year (Keep in mind, the last 40 years produced 10%, even with the lost decade) the 10% saver has just over 15X their final income as a retirement account. At 4% withdrawal, this replaces 60% of their income, with social security the rest, to get to nearly 100% or so replacement. Note - I wrote an article about Social Security Benefits, showing the benefit as a percent of final income. At $50K it's 42%, it's a higher replacement rate for lower income, but the replacement rate drops as income rises. So, the $5000 question. For an individual earning $50K or less, this amount is enough to fund their retirement. For those earning more, it will be one of the components, but not the full savings needed.  (By the way, a single person has a standard deduction and exemption totaling $10150 in 2014. I refer to this as the 'zero bracket.' The next $8800 is taxed at 10%. Why go 100% Roth and miss the opportunity to fund these low or no tax withdrawals?) Assuming you max-out your Roth IRA with $5000 in inflation-adjusted contributions every year from 25-65, your balance at age 65 will depend on the post-inflation return you get in the account.  Assuming you withdraw 4% per year after that, here is what your income will be: (All numbers are in inflation-adjusted 2011 dollars.)   If your post-inflation return is zero - if you buy treasury bonds, money-market accounts, or something like that - you'll have a simple $5000 * 40 = $200,000, which will give you an income of around $8000 per year. If you get a 3% post-inflation return - e.g. fairly safe Muni bonds, corporate bonds, and boring stocks - you'll approximately double your money to around $393,000, giving you an income of over $15,000 per year. If you get a 6% return - e.g. more aggressive stocks and more risk-taking - you'll approximately double your money again to over $825,000.  A 4% withdrawal rate will give you an income of around $33,000 per year. Stocks have historically returned around inflation + 8% - that will get you over $1.4 million - and an annual income of over $56,000 per year. So, yes, it is feasible to retire on nothing but a maxed-out Roth IRA. "I wouldn't settle for 10%, and I certainly wouldn't settle for a Roth. I'd recommend not retiring.  I'd recommend building up a side business in your ""free"" time while you're working that's closer to your calling that you can ""retire into."" Don't be complacent."
Does your employer provide a matching contribution to your 401k?  If so, contribute enough to the 401k that you can fully take advantage of the 401k match (e.g. if you employer matches 3% of your income, contribute 3% of your income).  It's free money, take advantage of it. Next up, max out your Roth IRA.  The limit is $5000 currently a year. After maxing your Roth, revisit your 401k.  You can contribute up to 16,500 per year. You savings account is a good place to keep a rainy day fund (do you have one?), but it lacks the tax advantages of a Roth IRA or 401k, so it is not really suitable for retirement savings (unless you have maxed out both your 401k and Roth IRA). Once you have take care of getting money into your 401k and Roth IRA accounts, the next step is investing it.  The specific investment options available to you will vary depending on who provides your retirement account(s), so these are general guidelines. Generally, you want to invest in higher-risk, higher-return investments when you are young.  This includes things like stocks and developing countries. As you get older (>30), you should look at moving some of your investments into things that less volatile.  Bond funds are the usual choice.  They tend to be safer than stocks (assuming you don't invest in Junk bonds), but your investment grows at a slower rate. Now this doesn't mean you immediately dump all of your stock and buy bonds.  Rather, it is a gradual transition over time.  As you get older and older, you gradually shift your investments to bond funds. A general rule of thumb I have seen: 100 - (YOUR AGE) = Percentage of your portfolio that should be in stocks Someone that is 30 would have 70% of their portfolio in stock, someone that is 40 would have 60% in stock, etc. As you get closer to retirement (50s-60s), you will want to start looking at investments that are more conservatie than bonds.  Start to look at fixed-income and money market funds. "First off, high five on the paycheck.  There are a few retirement issues to deal with. 401k issues - At that income level, you will probably fall into the ""Highly Compensated Employee"" category, which means things get a little more complicated, both for you and your employer.  (Wikipedia link) IRA issues - As you already realized, you make too much to directly open and contribute to a Roth IRA.  You can open a Traditional IRA, however.  Your income is already over the limit for Traditional IRA deduction (bummer), so it would seem there is little point to opening an IRA at all. However, there is a way to take advantage of a Roth IRA, even at your income level.  It is possible to convert a Traditional IRA into a Roth IRA.  There used to be income limits on the ability to do the conversion, which would have normally made this off limits to you.  Starting in 2010, the income limit is removed, so you can do this. Basically, you open a Traditional IRA, max it out, then convert it to a Roth.  Since there was no income deduction, you shouldn't have to pay any more taxes.  (link) Disclaimer: I've never tried this, nor do I know anyone who has, so you might want to research it a bit more before you try it yourself." There's a serious mistake in your analysis: granted, in the traditional IRA, you avoid paying taxes on the $5000 now, but you're now stuck paying taxes on $2.2 million dollars when you withdraw it later. Obviously, you'll end up paying massively more than $1250 in taxes on this in the end. As other people have pointed out, if you can afford to cut the $1250 elsewhere in your budget, you could still end up with the $2.2M. However, let's say just for argument that you don't; the question then becomes if you're better off taking the tax hit on the $5,000 now or the $2.2 million later. It also really matters how much money you'll be withdrawing when you retire as well as how you'll be doing the withdraws. Personally, my goal is to be able to withdraw as much per year as my highest salary while working, so clearly the Roth IRA is a good deal for me. An important consideration here is that most people believe that their expenses will go down when they retire, but the majority of retirees in some surveys have indicated that their expenses either stayed approximately the same or actually increased. Also, quick reality check: would the fact that you know you'd be saving $1250 on your taxes by contributing to the IRA actually cause you to contribute an extra $1250 to your retirement? Even if you personally would, I highly doubt that most people, with the exception of people who post on this site :), actually think that way (especially given how little most people actually save for retirement). A Roth IRA is just an account wrapper.  Inside a Roth IRA you can have a plain 0.1% savings account, or a brokerage account, or an annuity or whatever.  There's no rate of return for a Roth IRA. That particular calculator seems to assume you'll be wrapping a brokerage account in a Roth IRA and investing in the stock market.  Over a long period 6% is probably a reasonable rate of return considering the S&P 500 has returned about 7% over the last decade. "I am a CPA. Yes you can do what you are contemplating. Be careful that they do not take any taxes out of the money when you go to do the ""rollover"". If they do you will have to dip into your own pocket to put that back into the IRA." the $5500 Roth IRA is not restricted to earned income, you can put whatever money you have tax free and gains free. "It is not an either/or decision.  If you ""want to retire decades early"", then you will need to have a taxable account anyway, as you won't be able to stuff enough money into the tax-advantaged accounts to meet that goal. And if you are ""making a huge sum"", then you will be in a high tax bracket and so the tax advantages of saving into a 401K or IRA will be substantial. So, max out your 401K/IRA, and then save the rest into the taxable brokerage account.  When you retire at 39, live off your taxable account until you are old enough to tap the other ones without penalty. Unless you plan to die decades early, as well as retire decades early.  In that case, you can bypass the 401K/IRA." I second CrimsonX's advice to max out Roth then 401k. At your age in what sounds like a similar situation I did the same thing -- thankfully. It's easier to do when you're young and unencumbered. 10 years later with kids, house, changing from double to single income, job changes, etc, it's harder to max out retirement accounts. Not to mention that priorities change, e.g. saving for college. This all comes down to time: You can spend the maximum on taxes and penalties and have your money now.  Or you can wait about a decade and not pay a cent in taxes or penalties. Consider (assuming no other us income and 2017 tax brackets which we know will change): Option 1 (1 year): Take all the money next year and pay the taxes and penalty: Option 2 (2 years): Spread it out to barely exceed the 10% bracket: Option 3 (6 years): Spread it out to cover your Standard Deduction each year: Option 4 (6-11 years): Same as Option 3 but via a Roth Conversion Ladder: Yes for sure.  It would be redundant.  I have three of them, so what.  Its just more money in retirement.  I would prefer a ROTH IRA in your tax bracket and you next employer may not offer that.   And yes there are tax breaks either putting money in to a IRA or if you go the Roth route, on the way out.   So if you put money in a Roth now you will have some money at your tax rate in 40 years from now.  And if you put money in a traditional IRA when you are an employee you will save on the tax rate you are at then.  So you are hedging you bets on tax rates by paying them in two different decade.  Personally we are probably all on a tax holiday right now and I would be that taxes will be higher in the future as they are historically pretty low right now. "Couple points: 1) Since the Roth is after tax, you can effectively contribute more than you could with the Traditional IRA before hitting the limits. So in your example, if you had extra money you wanted to invest in an IRA, you could invest up to $1,750 more into the Roth but only $500 more into the Traditional (current limits are $5,500 per year for single filers under 50). Your example assumes that you have exactly $3,750 in spare money looking for an IRA home.  2) The contributions (but not earnings) can be withdrawn from the Roth at any time, penalty and tax free.  3) The tax rate ""lock-in"" can be significant, especially early on when you are at a relatively low tax bracket, say 15%, but expect to be higher at retirement.  4) Traditional IRAs and 401(k) are taxed as ordinary income, so you go through the tax brackets. Even if the marginal rate is 25%, the effective rate may be lower. If you have a Roth, conceivably you could reduce the amount you need to withdrawal from the Trad IRA/401(k) to reduce the effective tax rate on those (of course subject to minimum distributions and all that). This is more an argument to have a mix of pre- and post-tax retirement accounts than strictly a pro-Roth reason." "If you have wage income that is reported on a W2 form, you can contribute the maximum of your wages, what you can afford, or $5500 in a Roth IRA.   One advantage of this is that the nominal amounts you contribute can always be removed without tax consequences, so a Roth IRA can be a deep emergency fund (i.e., if the choice is $2000 in cash as emergency fund or $2000 in cash in a 2015 Roth IRA contribution, choice 2 gives you more flexibility and optimistic upside at the risk of not being able to draw on interest/gains until you retire or claim losses on your tax return).  If you let April 15 2016 pass by without making a Roth IRA contribution, you lose the 2015 limit forever.  If you are presently a student and partially employed, you are most likely in the lowest marginal tax rate you will be in for decades, which utilizes the Roth tax game effectively.   If you're estimating ""a few hundred"", then what you pick as an investment is going to be less important than making the contributions.  That is, you can pick any mutual fund that strikes your fancy and be prepared to gain or lose, call it $50/year (or pick a single stock and be prepared to lose it all).  At some point, you need to understand your emotions around volatility, and the only tuition for this school is taking a loss and having the presence of mind to examine any panic responses you may have.  No reason not to learn this on ""a few hundred"".  While it's not ideal to have losses in a Roth, ""a few hundred"" is not consequential in the long run.   If you're not prepared at this time in your life for the possibility of losing it all (or will need the money within a year or few, as your edit suggests), keep it in cash and try to reduce your expenses to contribute more.  Can you contribute another $100?  You will have more money at the end of the year than investment choice will likely return." You may withdraw penalty-free from a 401(k) if you separate from service at 55 or later. This may make the rolling to any IRA not a good idea. You can withdraw penalty free if you are disabled. You can withdraw penalty free if you take the withdrawal using a process called Section 72t which basically means a steady withdrawal for either 5 years or until age 59-1/2 whichever is second.  Aside from these exceptions, the concept is to be allowed to take withdrawals after 59-1/2, but you must start to take withdrawals starting at 70-1/2. These are called RMDs (required minimum distributions) and represent a small fraction of the account, 1/27.4 at 70, 1/18.7 at 80, 1/11.4 at 90.  Each year, you take a minimum of this fraction of the account value and pay the tax. If you had a million dollars, your first withdrawal would be $36,496, you'd be in the 15% marginal rate with this income.  In general, it's always a good idea to be aware of your marginal tax rate. For example, a married filing joint couple would be in the 15% bracket up to a taxable $74,900 in 2015. At withdrawal time, and as the year moves along, if they are on track to have a taxable $64,900 (for example), it would be wise to take the extra $10,000, either as a withdrawal to put aside for the next year, or as a Roth conversion. This way, as the RMDs increase, they have a reduced chance to push the couple to the next tax bracket. Your math is correct. As you point out, because of the commutative property of multiplication, Roth and traditional IRAs offer the same terminal wealth if your tax rate is the same when you pull it out as when you put it in.  Roth does lock in your tax rate as of today as you point out, which is why it frequently does not maximize wealth (most of us have a higher tax bracket when we are saving than when we are withdrawing from savings). There are a few other potential considerations/advantages of a Roth: Roth and traditional IRAs have the same maximum contribution amount.  This means the effective amount you can contribute to a Roth is higher ($5,500 after tax instead of before).  If this constraint is binding for you and you don't expect your tax rate to change, Roth is better. Roth IRAs allow you to withdraw your contributed money (not the gains) at any time without any tax or penalty whatsoever.  This can be an advantage to some who would like to use it for something like a down payment instead of keeping it all the way to retirement.  In this sense the Roth is more flexible. As your income becomes high, the deductibility of traditional IRA contributions goes to zero if you have a 401(k) at work (you can still contribute but can't deduct contributions).  At high incomes you also may be disallowed from contributing to a Roth, but because of the backdoor Roth loophole you can make Roth contributions at any income level and preserve the full Roth tax advantage. Which type of account is better for any given person is a complex problem with several unknowns (like future tax rates).  However, because tax rates are generally higher when earning money, for most people who can contribute to them, traditional IRAs maximize your tax savings and therefore wealth. Edit: Note that traditional IRA contributions also reduce your AGI, which is used to compute eligibility for other tax advantages, like the child care tax credit and earned income credit.  AGI is also often used for state income tax calculation. In retirement, traditional IRA distributions may or may not be state taxable, depending on your state and circumstances. "Unfortunately, not directly.  For IRAs and HSAs, we have an annual maximum contribution limit. What you can do (which doesn't ""initially seed"" it) is to put the money aside in a savings account that you want to contribute to your HSA or IRA and then put it in the IRA or HSA when the timing is right for you.  The key here though is that the contribution cannot exceed the maximum limit for the year. Another ""way around"" this (which really isn't because it just means that you'll have a new higher limit) is to become self employed, see this from the IRS about SEPs: Contribute as much as 25% of your net earnings from self-employment   (not including contributions for yourself), up to $51,000 for 2013   ($52,000 for 2014). Still, none of these methods are pre-seeding an account, as the maximum contribution limit is never exceeded."