7 Key Habits of 401(k) and IRA Millionaires

Advertising Disclosure: When you buy something by clicking links on our site, we may earn a small commission, but it never affects the products or services we recommend.

Middle-aged woman smiling and holding money
Krakenimages.com / Shutterstock.com

The number of millionaires in the U.S. jumped during the second quarter of this year, according to Fidelity Investments.

Thanks to the recent stock market rebound, 378,000 Fidelity investors with 401(k) accounts became millionaires during that three-month period. That is a jump of 10% from the first quarter, when 340,000 achieved that lofty status.

Meanwhile, 349,104 Fidelity investors with IRAs were millionaires in the second quarter, up from 307,623 in the first quarter. That’s a rise of 13%.

What are these folks doing right that has allowed them to amass such wealth? Here are some characteristics they share. Use these lessons as a model for your own wealth-building efforts.

1. They save for a long time

Turtle crawls on paper money
shymar27 / Shutterstock.com

Becoming a 401(k) millionaire takes time. The Washington Post has noted that most people who achieve 401(k) millionaire status take a tortoise-like 30 years to do so.

A get-rich-quick attitude is a surefire path to failure. So, be patient. Slow and steady will win the race.

2. They trust the market

Wall Street
Lucky-photographer / Shutterstock.com

When the stock market is stagnant or falling, it’s easy to get discouraged. But America has been through the Great Depression, the Great Recession and countless other financial crises. And in each case, the nation has recovered.

From time to time, the ship that is the U.S. economy takes on water and begins to list a bit. But it always rights itself and moves full steam ahead.

Those who become 401(k) millionaires trust the process, believing that market gains will return. And, to date, the market has always richly rewarded their faith.

3. They put money to work at all times

Invest button
Olivier Le Moal / Shutterstock.com

Fidelity notes that taking a loan from your 401(k) account can be hazardous to your financial health:

“Using a 401(k) loan for elective expenses like entertainment or gifts isn’t a healthy habit. In most cases, it would be better to leave your retirement savings fully invested and find another source of cash.”

On the road to becoming a 401(k) millionaire, it is crucial to keep going instead of taking occasional — or permanent — pit stops. Once you are rich, there will be plenty of opportunities to stop and see the sights.

4. They keep fees low

Zero percent
pr_camera / Shutterstock.com

The year 1995 was very good for the S&P 500 — investments returned 37.2% to investors. Other exceptionally good years included 1975 (37%), 2013 (32.15%) and 2019 (31.21%).

How about 1974, 2008 and 2022? Not so much. The market tumbled in each of those years, ending down 25.9%, down 36.55% and down 18.01% respectively.

While you can’t control how the market performs in any given year, you can keep your expenses low at all times. Choosing passively managed mutual funds can help trim your expenses dramatically, as we report in “Warren Buffett’s Sane and Simple Retirement Investing Plan.”

As the Oracle of Omaha says:

“If returns are going to be 7 or 8%, and you’re paying 1% for fees, that makes an enormous difference in how much money you’re going to have in retirement.”

5. They diversify their investments

Diversification investments
William Potter / Shutterstock.com

Putting all of your money into one or two stocks might help you get rich overnight.

Of course, it’s just as possible that you will lose everything. Just ask Enron employees who parked all of their retirement money in company stock before that firm went bust.

Because the risk is so great, it’s safer to skip buying just a handful of individual stocks and instead park your money in well-diversified mutual funds. Buy a mutual fund that tracks the S&P 500, and you instantly will own shares in hundreds of companies. If one of those firms goes broke, you will hardly feel it.

6. They don’t take 401(k) loans

Businessman says no or declines a rejected application for a mortgage or loan or insurance
Atstock Productions / Shutterstock.com

Many employers allow workers to take loans from their 401(k) plan. For some people, this can be a big help when times get tough.

But taking such a loan can reduce the size of your nest egg. The money you take out of your 401(k) is no longer compounding, which can damage your long-term returns.

For this reason, it is probably best to avoid taking a 401(k) loan if you can help it. As Fidelity says:

“Using a 401(k) loan for elective expenses like entertainment or gifts isn’t a healthy habit. In most cases, it would be better to leave your retirement savings fully invested and find another source of cash.”

7. They never quit

Money and business
Tom Wang / Shutterstock.com

A 2016 U.S. Trust survey of people with investable assets of at least $3 million found that 77% of these wealthy individuals reported growing up in families that were middle-class or poorer. And 19% of those success stories were folks who grew up in poverty.

Those folks got rich through hard work, not silver-spoon status.

As we pointed out in “10 Characteristics of Wildly Successful People,” successful people such as 401(k) millionaires never stop working hard:

“If you aren’t willing to put in the hours and make some sacrifices, you might as well get accustomed to mediocrity. The best things in life — whether that’s money in the bank or a great relationship with your spouse or child — typically come only with significant effort.”

Get smarter with your money!

Want the best money-news and tips to help you make more and spend less? Then sign up for the free Money Talks Newsletter to receive daily updates of personal finance news and advice, delivered straight to your inbox. Sign up for our free newsletter today.