How To Become a 401(k) Millionaire
Written by
Laura Beck
Edited by
Ashleigh Ray
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Many people dream of amassing $1 million or more in their 401(k) retirement accounts. While it may seem like a lofty goal, with the right strategy and discipline, it is achievable for many savers over the course of their careers.
According to Meghan Murphy, director of thought leadership at Fidelity Investments, contributing consistently to a 401(k) is especially critical for younger generations. “I think as people become more educated about the topic, they are realizing that it’s really going to be up to them to fund their retirement,” Murphy said. “Especially for the millennials — they are realizing that it’s important to save today for what they are going to want in the future.”
So how can you grow your 401(k) into a million-dollar fund? Here are pro tips for maxing out your account balance.
Start Saving Early
The sooner you begin contributing to your 401(k), the more time your investments have to grow, thanks to compounding returns. Murphy emphasized investing from the get-go, even if you’re not earning big bucks yet or working your dream job.
“Don’t wait until you are working the job you want, with the company you want, at the salary you want, before you start contributing to your retirement,” she said.
Max Out Employer Matching
Never leave “free money” on the table. Take full advantage of any match your employer offers. For example, if your company matches 3% of your $60,000 salary, that’s a $1,800 annual bonus. Stretch farther for partial matches, too — going beyond the full match threshold could net you thousands more over time.
Weigh Salary vs. Benefits
You may have to forgo a higher salary to get better 401(k) perks with another employer. Crunch the numbers, factoring in compound growth over decades, to make the best choice. The match might be more valuable long-term than slightly higher pay.
For example:
| Salary | Company Match | Employee Contribution | Total 401(k) Investment | |
|---|---|---|---|---|
| Job 1 | $60K | 100% match on first 3% ($1,800) | 5% ($3,000) | $4,800 |
| Job 2 | $65K | 0% | 5% ($3,250) | $3,250 |
The difference is $1,550 a year. Imagine staying at the same salary and contribution rate for 30 years. The company match allows you to invest $46,500 more than a higher-paying job at the same contribution rate would. Obviously, that extra $46,500 would be worth a lot more once you factor in compounding interest.
Of course, this amount could change based on salary, how much you contribute and how much your employer matches; be smart and do the math before you make an employment decision based on the 401(k).
Monitor and Rebalance
Many individuals will set up their 401(k)s and then not think about them for many years to come. Although it’s smart to allow your investments to grow steadily over the years, it is still important to evaluate your account annually.
“We recommend that people check in at least annually on their account, just to make sure that the way it is invested and the way that their future contributions will be invested still meet their needs,” Murphy said.
Accept Any Free Contributions
“To become a millionaire, accept any free money offered to you,” said Paul Herman, CEO and founder at HIP Investor Inc.
Take full advantage of fixed or matching employer contributions.
Buy Company Stock at a Discount
Some plans let you purchase company shares inside your 401(k) at a reduced price. The tax-deferred growth and dividend reinvestment boosts your balance.
Self-Direct Investments
See if your plan allows “open window” brokerage investing. You can then customize fund choices beyond the standard lineup. But watch for extra fees, Herman cautioned.
Weigh Tax Implications
Herman noted that contributing pre-tax — traditional 401(k) — benefits higher earners now through deductions, while lower earners may favor after-tax Roth contributions.
Pay Yourself First
“Reduce your everyday spending now, so you can increase your chances of living better in the future,” Herman said. Making retirement your priority allows earlier financial freedom.
With discipline and savvy strategizing, amassing $1 million or more in your 401(k) is an ambitious yet achievable goal for many investors.
Ashley Eneriz contributed to the reporting for this article.
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