How to Calculate Roth IRA Returns

An individual retirement account (IRA) can be a great place to save and grow your money for retirement. However, unlike some accounts, IRAs don’t pay a set interest rate.

Instead, IRAs are accounts that hold the investments that you choose. That means your Roth IRA (and traditional IRA) returns depend on the assets that you pick for the account—and how they perform.

Key Takeaways

  • Roth individual retirement accounts (Roth IRAs) don’t earn a specific interest rate. Instead, the returns depend on the investments that you hold in the account.
  • You can keep various investments in your Roth IRA, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), and even real estate (but you’ll need a self-directed IRA for that last one).
  • Your Roth IRA custodian will send periodic statements that highlight the monthly or annual return that your account earns.

Your Roth IRA provider will send you monthly or annual statements that show the account’s earnings. And if you have an online account with the provider (or an app), you can check your balance and other details at any time.

Still, it can be helpful to know how to calculate your Roth IRA returns on your own to see exactly where your returns are coming from.

A Hypothetical Roth IRA Portfolio

Let’s say that you open a Roth IRA at the beginning of the year. Your goal is to save $5,000 by the end of the year. You want to invest monthly, so you divide $5,000 by 12 months and determine that you need to save $416.67 per month to reach your savings goal.

Out of each deposit that you make into the account, 20% goes into a certificate of deposit (CD), 40% goes into a bond mutual fund, and 40% goes into a stock mutual fund.

You meet your goal and contribute $5,000 by the end of your first year. The statement from your IRA provider shows that your portfolio earned a 3.26% return. But how did it come up with that number?

Rates of Return for Each Investment

To understand the return, you need to look at each investment in your account. For our hypothetical example:

  • The return on the CD is 1% per year
  • The bond fund yields 4.2% a year
  • The stock fund returns 10% per year

These are the annual rates of return on each of the three holdings in your account, but you have to remember that you're investing monthly, so while your $416.67 investment in month one will generate close to the annual rates of return mentioned above, the investments made in other months will generate less overall returns as they are held in the account for less than a year.

How to Calculate Overall Portfolio Return

To calculate the collective return of all three investments, you would calculate the return of each deposit—so in the example, 12 for the 12 months. That is, $416.67 in month one, with 20% going into the CD, 40% in the bond fund, and 40% in the stock fund, and then finding the future value for each. Then you add all the future values and divide by the investment amount to get your overall return.

In the example, the future value of all 12 monthly deposits is $5,163. Thus, the overall return of the portfolio is 3.26% ($163 / $5,000). Now, your annualized return, which would be the return of your investments if you'd invested $5,000 all at once at the beginning of the year in your selected CD/bond/stock portfolio would be 5.88% [(20% * 1%) + (40% * 4.2%) + (40% * 10%)]—the weight of each asset multiplied by its annual return, then summed.

At the beginning of the 12 months, you had $0 in your account. Now, at the end of the year, you have $5,163. But it’s important to realize that $5,000 of that “growth” in your account came from your deposits—your diligent saving and investing. That money, in turn, earned you $163.

It’s also interesting to consider how each investment performed compared to the portfolio’s overall returns. Your stock mutual fund returned 10%, but the whole account only returned a little over half of that. Why? The lesser returns from the other holdings acted as a drag, especially the CD (which only earned 1%). Good thing it only made up one-fifth of the portfolio. That illustrates the importance of portfolio diversification.

How Much Can I Contribute to a Roth Individual Retirement Account (Roth IRA)?

For 2021 and 2022, you can contribute up to $6,000 to your individual retirement account (IRA). The limit bumps up to $7,000 if you’re age 50 or older due to the $1,000 catch-up contribution. The limit is the combined total for all of your IRAs—it does not apply to each IRA. For example, if you’re younger than 50 and add $4,000 to your traditional IRA for 2022, the most that you could contribute to your Roth during the same year would be $2,000.

What Is the Deadline for Contributing to an IRA?

April 15, 2022 was the last date to make a 2021 IRA contribution. The deadline is generally the same date as the income tax filing deadline. If you make a prior-year contribution, tell your IRA provider the tax year to which you want the contribution to apply. Otherwise, they could apply it to the current (i.e., wrong) year, and you could miss the opportunity to make the previous year’s contribution.

What Is a Self-Directed IRA?

Most IRAs invest in traditional assets like stocks, bonds, and mutual funds. A self-directed individual retirement account (SDIRA) is an IRA that can hold alternative investments typically not available in IRAs. For example, SDIRAs can invest in real estate, precious metals, and private equity. Although a custodian or trustee administers an SDIRA, the account holder directly manages it—thus “self-directed.”

The Bottom Line

It’s good to know how your IRA is performing overall and how much return you receive on each specific investment. That way, you can make sure that your Roth IRA is on track—and make any changes if needed. If you need help with the investments in your Roth IRA, it can be helpful (and worth the money) to consult with a trusted financial planner or advisor.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Internal Revenue Service. “Retirement Topics — IRA Contribution Limits.”

  2. Internal Revenue Service. “IRA Year-End Reminders.”

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