Liz Weston

Dear Liz: Many years ago, I read in a personal finance magazine about a mutual fund company that paid $1 million to a customer who had an IRA for 40 years. So I started an IRA at that company in December 1992 and paid $10,000. As of today, that account is worth only $80,000. What happened to the high payoff?

Answer: First things first. The maximum you were supposed to contribute to an IRA in 1992 was $2,000. If you were able to contribute more, you may have opened a different type of account, such as a regular taxable brokerage account. Either that or you have some explaining to do to the IRS.

Also, IRAs hadn’t been around for 40 years in 1992. They were created in 1974 by the Employee Retirement Income Security Act. So what you probably read in the magazine was a hypothetical example of what someone might accumulate over time in an IRA. Someone who contributed $2,000 a year to an IRA for 40 years could wind up with $1 million, but only with returns in excess of 10%.

Actual returns historically have been closer to 8%, but that’s an average. Some years it’s less, some years it’s more. There are no guarantees. What you end up with depends on how you invested the money and what fees you paid, among other factors. If your investment had done as well as the broader stock market, as measured by the Standard & Poor’s 500, you would have over $100,000 by now.

If your money is in an IRA, you could move it to be a better investment, such as a low-cost, broad-market index fund, without tax consequences. If it’s not in an IRA, then selling the investment to buy another could generate a tax bill, so consult a tax pro before taking any action.