The benefits of contributing to your IRA today

Contribute today for growth tomorrow

Compound interest is a core principle of long-term investing generally and investing in an IRA specifically. Whether you have a traditional IRA or a Roth IRA, both accounts have this same advantage on their side—the ability to transform consistent contributions into potential growth over time. Compound interest works similarly to the snowball effect. You earn returns not just on your original contributions, but also on the earnings from the previous years until that initial snowball looks more like a snow boulder.

Say you’re 24 years old and actually take your parents’ advice about diligently saving early in your career. If you start contributing $7,000 a year (the current maximum allowed) to an IRA today, your account will have grown to approximately $1.04 million by the time you can begin making penalty-free withdrawals at age 59½ (assuming a 7% return rate). That’s more than four times your actual contributions of $252,000.

This shows the power of consistent saving and compound interest. But it doesn’t tell the whole story. With IRA contributions, when you contribute can often be just as important as how much you contribute.

Meet two savers with two very different timelines. Person A starts contributing $7,000 a year to their IRA at age 25 but completely stops at 35. Person B, on the other hand, waits until 35 to begin but consistently contributes $7,000 every year until age 65. Assuming a 7% annual return, the results at age 65 might surprise you. Despite contributing only $70,000 over 10 years, Person A’s account still grew to around $736,000 by age 65. In comparison, Person B contributed $210,000 over 30 years yet ended up with a smaller account balance of around $661,000. This is the power of compound interest and highlights why contributing now is so important.³

Even if you’re not early to the savings party, here’s the good news: It’s never too late to harness this power. No matter when you start, every dollar you contribute today will work harder for you than money you might save elsewhere. Even Person B’s account grew more than three times what they contributed. The key isn’t perfect timing—it’s starting now. And with new rules around required minimum distributions, you’ll benefit even more down the road.

Know when and how to contribute

Contributing to your IRA can feel a lot easier when you understand the ins and outs of limits and deadlines. For 2025, the annual contribution limit is $7,000, with an additional $1,000 catch-up contribution available if you’re 50 or older. You also have until April 15^th of the following year to make contributions, giving you valuable time to potentially optimize your tax strategy.

It’s important to know, however, that once you make your contributions, they’re not automatically invested, unlike a 401(k) or other managed, workplace retirement plan. Instead, they often sit in default, low-yield cash accounts while you decide how to allocate. Proper allocation starts with understanding your retirement goals, risk tolerance, and overall timeline.

TIAA IRAs offer nearly 100 investment options, from professionally managed mutual funds to stocks, bonds, and exchange-traded funds available in the brokerage window. TIAA IRAs also feature the distinctive ability to purchase annuities within your account, which can offer guaranteed lifetime income. If you’re hesitant about which way to go, TIAA’s complimentary personalized advice, powered by Morningstar expertise, helps you select and implement the right investment strategy for your situation. For more information about potential investments in your IRA, visit TIAA’s IRA Investment options homepage.

Get personalized IRA guidance

Your TIAA Wealth Management advisor can help you create a comprehensive plan to maximize your IRA’s potential. Don’t yet have an advisor? Schedule an appointment.