Individual retirement accounts (IRAs) are one of the best financial tools available to U.S. investors. Not only do they allow you to set aside money for your retirement without the need to worry about capital gains tax or dividend taxes every year, but they can provide some tremendous tax advantages for you when you contribute or withdraw money.

In the case of traditional IRAs, the money you contribute can be deducted from your taxable income each year if you meet certain requirements. If you’re in the 22% tax bracket and contribute $5,000 to an IRA in 2025, for example, this can save you $1,100. On the other hand, if you contribute to a Roth IRA, your deposits are never deductible in the year they are made, but any qualified withdrawals from the account in retirement will be completely tax-free.

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I have been contributing to my IRA rather aggressively since I was in my late 20s, and now that I’m 42 years old, I’m on track to be an IRA millionaire by the time I retire. And the best part is that there isn’t a magic formula. By using two basic strategies, you can set yourself up to be an IRA millionaire, too.

1. Contribute as much as you can, as early as you can

The No. 1 rule of IRA investing (and any investing, for that matter) is to keep investing over time, regardless of what the stock market or economy is doing. In 2025, those who qualify can contribute as much as $7,000 to a traditional or Roth IRA. If you’re 50 or older, this goes up to $8,000.

If you’re self-employed or have a side hustle that pays you as an independent contractor, there are other options available to you, such as a SEP-IRA, SIMPLE IRA, or solo 401(k). I use a SEP-IRA to save for my retirement. These are designed primarily for those who don’t have access to an employer’s retirement plan, and therefore have significantly higher contribution limits than traditional and Roth IRAs.

Whichever one you choose, the most important thing you can do to set yourself up to become an IRA millionaire is to contribute as much as you reasonably can, and to get started as soon as possible.

One suggestion is to automate the process. For example, you could set up an automatic transfer of $200 per paycheck into your IRA, so you don’t have to remember to do it. People who automate parts of their financial lives are more likely to achieve their goals, so it’s worth considering this for your IRA investing.

2. Invest for high returns with minimal long-term risk

Of course, in a perfect world, we could put our retirement savings in moonshot tech stocks and earn 100X returns. But speculative risks are best saved for money that you can afford to lose, and your retirement savings isn’t in that category.

Instead, the goal with your retirement investments should be to create a portfolio of stocks or funds that are extremely likely to be worth significantly more by the time you retire than they are today, with minimal risk of losing money over time. This can mean individual stocks, exchange-traded funds (ETFs), or mutual funds — or some combination of the three.

Just to name a few examples from my own portfolio are individual stocks such as Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), MetLife (NYSE: MET), and Realty Income (NYSE: O). They aren’t likely to produce spectacular returns, but it’s tough to imagine any scenario where they produce negative total returns over the next 15 to 20 years.

If you aren’t keen on investing in individual stocks, that’s fine. In fact, I’d argue that some ETFs, including the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the Vanguard High Dividend Yield ETF (NYSEMKT: VYM), are the best combinations of long-term returns and limited downside risk when you measure your returns in decades.

It’s also important to maintain an appropriate asset allocation. In simple terms, when you’re younger, you have more time to ride out the ups and downs of the stock market. As you get older, preserving the money you have becomes more of a priority.

One popular guideline, known as the Rule of 110, says that by subtracting your age from 110, you can figure out how much money you should keep in stock-based investments, with the rest in fixed-income instruments like bonds and high-yield CDs. For example, I’m 42 years old, so this means that I should have about 68% of my money in stocks and the other 32% in fixed income.

Trust the process

One of the most important things to keep in mind before you start your IRA journey is that the path to becoming an IRA millionaire isn’t likely to be a straight line. Especially if you are still decades away from retirement, there are likely to be stock market crashes and corrections, and other periods of high volatility along the way.

However, the important thing is to keep investing over time, regardless of what the market is doing, and maintain an appropriate asset allocation in your IRA. If you do this, you can sit back and let the compounding power of the stock market (and tax benefits of IRA investing) do the work for you.

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Matt Frankel has positions in Berkshire Hathaway, MetLife, Realty Income, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Berkshire Hathaway, Realty Income, Vanguard S&P 500 ETF, and Vanguard Whitehall Funds – Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.