How to Become a 401(k) Millionaire

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Editor's Note: This story originally appeared on SmartAsset.com.

The number of 401(k) and IRA millionaires reached an all-time high in the first quarter of 2021, according to Fidelity Investments. Retirement account balances have been steadily recovering in the year since COVID-19 first emerged, even surpassing pre-pandemic levels. Today, more than 365,000 Fidelity investors boast seven-figure 401(k) balances, along with more than 307,600 IRA millionaires. A well-funded retirement account can afford you the financial security you need after your career ends. But to become a 401(k) millionaire, there are several steps you’ll need to follow.

There are 10 key moves a 401(k) investor should make to maximize his or her opportunity to retire as a 401(k) millionaire. Of course, there’s no guarantee that following these steps will turn you into a millionaire, but it’s unlikely you’ll reach such a level without making a number of the following moves.

Start Early

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One of the most important factors for your retirement account — or really, any investment — is time. The earlier you begin contributing to your 401(k) account, the longer your money has to grow and the more your returns can compound (or multiply).

By starting your retirement savings efforts as early as possible, you increase your chances of becoming a 401(k) millionaire and successfully funding your future. What if you’re getting a late start on your retirement savings, though? Do you still have a chance at meeting your goal?

In part, the answer to that depends on you how much you save each year from this point on and on how your retirement savings are invested. Starting today is still better than starting tomorrow (or a year from now), however, especially if you can save as aggressively as possible now.

Calculate What You Need

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Saving a million dollars for your retirement is an exciting goal to set … but is it the right goal for funding the future lifestyle you have in mind?

Odds are that your current spending habits and budget are different from those of your co-workers, your best friend and even your siblings. Your plans for retirement probably differ, too. Some people plan to enter retirement debt-free, for instance, spending their years gardening and visiting the grandkids. Others want to finally travel the world in retirement or buy their dream home at the beach.

It’s important that you spend some time deciding what you want your retirement to look like and how much that lifestyle will realistically cost.

In some cases, you may not even need a million dollars, especially if you have other assets to pull from. For others, though, having a million dollars in a 401(k) won’t be enough to last. Set your retirement savings goals accordingly, in order to properly fund the future you’re eyeing.

Contribute Regularly

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One great thing about a workplace-sponsored 401(k) plan is that your contributions can be automated. Your employer can take the funds out of your paycheck before the deposit ever hits your account, ensuring that you “pay yourself first” every single month and meet your goals.

In some cases, though, your retirement savings may not be automated. If you’re a small-business owner, for example, you may need to set up a SIMPLE 401(k) or a solo 401(k). In that case, you’ll be responsible for setting up your own contributions and meeting your own savings goals.

Be sure that whatever retirement savings vehicles you choose, you are contributing regularly and consistently.

Invest the Maximum

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The more you save today, the more your retirement savings will grow and the better your chances will be of meeting your goals. Whether you want to be a 401(k) millionaire, are aiming for early retirement or simply want to be financially independent, saving the maximum you can afford each month will get you there.

The IRS limits the amount you can save in your 401(k) each year; for 2021, this limit is $19,500 (if you’re over 50, you can deposit an extra $6,500 as a catch-up contribution). If your budget allows, try to max out your contributions to better your chances of savings success.

If $19,500 a year isn’t doable for you, simply invest the maximum that you can afford. Aim to save at least 10% to 15% of your income, and watch your balance grow.

Take Advantage of an Employer Match

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An employer match on your retirement contributions is one excellent way to amplify your savings efforts. This is essentially free money, and you should avoid leaving it on the table if at all possible. If your employer is offering to match a portion of what you contribute to your retirement savings, you should ensure that you are depositing at least enough to max out this match. The maximum is usually a percentage of your salary (often between 3% and 5%).

Also, note that the funds may be “vested.” This means that you only get the full match amount if you stay with your employer for a minimum amount of time; if you quit your job before that vesting period ends, you won’t get the full match.

Maximize Your Investment Potential

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Your employer may offer multiple investment options for your 401(k). If this is the case, spend some time researching each option so you have the best chance of maximizing your returns.

Consider your risk tolerance and when you plan to retire. The further you are from retirement, the more risk you can afford and the higher your potential returns. Also, be sure to weigh each fund option in terms of expenses.

Limit Your Fees

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Your 401(k) plan will involve various fees and expenses, which will vary from one plan to the next. While these fees may seem small (often a fraction of a percentage point), they can really add up over time.

The fees on your 401(k) will be automatically deducted, so you may not even recognize how much your plan is costing you. Every dollar that you spend on retirement plan expenses is a dollar that can’t grow and compound for your future, though. Do your best to balance projected returns with plan costs and consider switching plans if there’s an opportunity to save on fees.

New Job? Roll Over Funds

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Each employer will offer its own retirement plan options. When you change jobs, you may be offered a managed plan with your new employer, which may be better than the plan that’s currently holding your funds.

You have three primary options for your existing 401(k) savings when you change jobs. You can:

  • Leave it where it is (with your old employer).
  • Roll it over to your new employer.
  • Roll the funds into an IRA.

If you have enough money in that 401(k) — usually $5,000 or more — most plans will let you leave it alone, which could be a good decision if you are seeing great returns there and are happy with the plan’s expenses.

However, if you have less than $5,000 in there, aren’t moving to a new job just yet or aren’t otherwise happy with the plan’s management or fees, a rollover is a better idea.

The first route to consider is rolling your money into a traditional IRA. This may be the best choice if your new employer doesn’t offer a 401(k), you don’t have another employer lined up or you just want to have more flexibility with your account options. IRAs are offered by nearly every brokerage and give you a variety of options for your money.

The second option is to roll your savings into your new employer’s 401(k) plan. If they offer better funds or lower fees and expenses on plans, this is probably your best move.

Leave the Money Alone

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Whether you’re trying to reach 401(k) millionaire status or just want a successful retirement, there’s one important rule to keep in mind over your decades of saving: Don’t touch the money.

No matter what life throws at you, avoid the temptation to pull from retirement accounts. Early withdrawals can not only derail your progress exponentially but will also subject you to penalties and fees. In most cases, it’s not worth the added cost.

If an unexpected situation arises, consider the alternative options available before pulling from your retirement funds ahead of schedule. In many cases, a personal loan or home equity line of credit (HELOC) could meet your needs just as well.

Don’t Forget Other Retirement Savings

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While a 401(k) is the most popular retirement account option, it’s not the only one. Depending on your savings strategy and how much you have to save, you may want to consider spreading out your retirement efforts across a variety of different savings avenues.

A traditional or Roth IRA can be another great option for retirement savings, especially if you’re already maxing out your 401(k) contributions. You may also choose to focus on a personal investment portfolio. There, you can invest in funds that your employer doesn’t offer or even individual company stocks.

You can also utilize real estate investments — such as rental property or REITs — to bolster your retirement cash flow. They won’t include the same tax advantages as 401(k)s or IRAs, but they can be a great addition to any well-funded retirement strategy.

The Bottom Line

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Saving for retirement is a decades-long journey, whether you’re aiming for a seven-figure balance or comfortable security. Of course, there’s no guarantee that following these 10 steps will turn you into a 401(k) millionaire. But by following them you’ll better your chances of reaching your retirement goals and feeling financially secure after you retire.

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