Americans have multiple tools available to save for retirement. Individual Retirement Accounts (IRAs) rank among the best. Your contributions are tax-deductible with traditional IRAs. Taxes are due only when you withdraw from your account. Your contributions aren’t tax-deductible with Roth IRAs, but you won’t pay any taxes on withdrawals later.

The most important thing to know about IRAs is that you must contribute regularly to have enough money when you retire. But how much should you contribute? The answer depends on how much you’ll need in retirement. Here’s how much you’d need to put in your IRA to save $500,000 in 20 years.

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Two key assumptions

Before we get to the amount you’ll need to contribute to your IRA, let’s address two key assumptions used in the calculation.

First, we’ll assume that you’ll make monthly contributions to your IRA. Do you have to contribute to an IRA each month? Nope. Some opt to shift money into their IRAs each quarter, or even less frequently. Others contribute to their IRAs every time they are paid by their employers, which could be weekly or bi-weekly. However, we needed to go with a regular contribution schedule for calculation purposes. Monthly seemed to be a good middle-of-the-road option.

Second, the calculation assumes a 10% annual rate of return. This is roughly the average historical return for the S&P 500. Since the S&P 500 is the benchmark for many investors, using this rate makes sense.

Keep in mind, though, that your actual return could be higher or lower than 10%. Even a small increase or decrease could make a big difference over 20 years of saving for retirement.

The magic number

So what is the magic number for what your monthly IRA contributions would need to be to have $500,000 after 20 years? It’s $658.44.

There’s one potential problem with this amount. The maximum annual contribution to an IRA in 2025 is $7,000. Contributing $658.44 per month totals a little over $7,900 — well above the allowed threshold. However, anyone 50 or older can contribute $8,000 per year to an IRA. If the 20-year period starts when you’re 50, the issue is a moot one.

Another consideration is that the IRA contribution limit frequently increases from year to year. For example, the limit was $6,000 in 2022 and jumped to $6,500 in 2023 and $7,000 in 2024. It’s possible that future increases to the contribution limit could enable anyone to contribute $658.44 per month with no problem.

Saving $658.44 each month could also be too much of a stretch for many Americans. However, the median U.S. household income in 2023 was $80,610. This monthly IRA contribution equates to roughly 9.8% of median income, a level that should be doable for many if they exercise financial discipline.

$500K might not be enough

$500,000 sounds like a lot of money — and it is. But the bad news is that it might not be enough to meet your retirement needs.

If we use the “4% rule,” which allows for withdrawing 4% of retirement savings each year, a nest egg of $500,000 in your IRA would generate $20,000 in annual retirement income. The average Social Security benefit for a retired worker is $1,976 per month ($23,712 per year). Many Americans could find it difficult to live comfortably on an annual retirement income of $43,712 ($20,000 from IRA savings plus $23,712 from Social Security).

The best answer to this dilemma is to start saving for retirement earlier. The sooner you start saving, the more time your money has to grow.

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