How to Become a 401k Millionaire

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It’s more easier than ever to become a 401k millionaire. It doesn’t happen overnight nor does it happen by accident. The steps you need to take to become one are very simple. All you have to do is max out your account up to the limit, take advantage of company match, and invest that money over decades.

My 401k has a balance of approximately $240,000. My account took a very hard hit after the January 2022 crash. However, it is still in positive territory over the past year. As the maximum contribution limits generally goes up by $500/year every year, it’s become easier for employees to become a 401k millionaire.

Since my full year of working in 2017, I have never failed at maxing out the 401k. In 2017, my base salary was $56,000. After taking out the $18,000 contribution limit, my base salary was only $38,000! After taking out HSA, insurance, contributions, and the like, it was even less than that.

However, I was still saving for the future because I knew how important it was to save and invest in the earlier years. In just five and a half years of working, I grew my 401k balance to the quarter million dollar mark. In another five and a half years of working, I’m confident I can grow it to the half a million dollar mark.

That is, if I continue working. I just know that it’s only a matter of time before I’m a 401k millionaire. Take it from someone who’s on his way to become one. There’s a record number of accounts that are hitting the million dollar mark after COVID started. It’s never too late to go aboard the gravy train.

How to Become a 401(k) Millionaire

The first step to becoming a 401k millionaire is to SMASH that social share button and posting to your favorite social media! Anything that can help your friends be smarter about their finances is a win.

So with that said let’s get into the juicy details of becoming a tax advantaged millionaire!

1) Contribute At Least to Company Match

401k millionaires start with company matches.
Have to love the matching.

This is crucial. Many companies match 6% of your contributions. I’ve seen some companies match up to 100% of their 401k contributions. However, that’s a HUGE outlier. It’s standard to match approximately 6% of your salary to a 401k program. Many of my friends were young and didn’t even take advantage of that!

The madness. It was mind boggling. I tried to convince them to at least get the match and most flat out refused and mocked me for doing so. Which is completely OK with me. If you don’t contribute at least to the company match, you’re leaving free money on the table. The company offered you the advantage.

it’s up to you to take advantage of it. There are absolutely zero 401k millionaires who got there by not taking advantage of company match. This isn’t just a nice thing to do for your retirement. This is a must thing to do for your retirement. There’s no way around it, you can’t be a tax advantaged millionaire if you don’t contribute.

2) Contribute and Invest Consistently

The second step is to do it over a long period of time without fail and consistently. I consistently put in money into my 401k no matter how low or high my base salary was. I didn’t care, I just wanted to contribute because that’s how much investing for my future meant to me.

Many coworkers judged and mocked me for it, which was perfectly fine with me. I just remained silent and continued to max out my accounts. My 401k accounts now total approximately $225,000. And that’s my 401k alone! I got there by consistently contributing to my 401k accounts. Every paycheck.

Without fail. It was demoralizing when a very large chunk (20%) of my paycheck just went straight to my 401k. Every 2 weeks. However, I knew that it was for my future so I didn’t mind it as much. Every two weeks, I would be delighted to know that money is shielded from taxes, at least for the time being.

I know I’m on my way to being a 401k millionaire.

3) Over Time, Max Out Your 401k

After you contribute up to the company match and you contribute consistently, now it’s time to max it out. You can be a 401k millionaire without maxing it out. However, this is to fast track to your financial success. If your budget allows for you to max out your 401k, take advantage of it.

You will be surprised at how fast the account balance will balloon once you max out your 401k. You’re not just investing your money, you’re investing your money in a tax advantaged way. Which is the best kind of contributions. I am currently very blessed that my salary is high enough to take advantage of maxing it out.

And still live comfortably. There’s plenty of money leftover for me to enjoy. If anything else, consider making more side income so that you can use more of your day job income to be tax advantaged. Any time that you can legally lower your tax bill is a win for you.

More People Are Becoming 401k Millionaires

Fidelity reports that there’s been a record number of 401k and IRA millionaires one year after COVID. And that was in May 2021. I can’t imagine just how many more accounts hit that million dollar threshold. It’s important to note that this is just in the tax advantaged accounts, alone!

The people who have the discipline, willpower, and the desire to save this amounts are disciplined in their savings pursuits, in general. Imagine just how much more money that they have in their after-tax accounts. I’m willing to bet that it’s a nonzero number.

This just proves just how with the right discipline, choices, and desire, people can become a 401k millionaire. Although a high salary helps, it’s not a necessity. It may take longer to get to the millionaire status but it’s not going to be impossible. My current company only matches $5,000 in my 401k.

Although that is a decline from my prior company’s match of $11,000 to my 401k, my overall compensation was an increase. I don’t doubt that I will still have something close to $500,000 in another 5.5 years. After all, starting from 0 to $225,000 is a lot harder than starting from $225,000 to $500,000.

You can be a part of the record number of people becoming 401k millionaires. All you have to do is follow the simple 3 step process as outlined above in order to get there. It’s not going to be easy maxing out your 401k, if you don’t make six figures. However, that doesn’t mean that it’s not more than doable.

It’s Simpler to be a 401k Millionaire

Remember that a penny saved is NOT a penny earned. A penny saved is closer to 1.2 pennies earned because of the taxes involved. It is much easier to be a 401k millionaire than it is to be an after-tax millionaire. Because it takes much more earnings to be one. In order to max out your 401k for 2022, you literally only need to earn $20.5k.

In order to contribute $20.5k to your after tax accounts, you literally have to earn more than $20.5k. You can’t forget the impact of taxes. Even then, by the time retirement comes around, if you’re not dependent on any income, there’s a way to withdraw from the 401k even without paying taxes on it.

There’s no need to take the complicated route. Take the simpler route, please. You don’t get extra points nor do you get extra money for being a millionaire the hard way. 401k’s are one of the reason why the rich get richer and the poor get poorer. You want to take every advantage that’s offered to you.

Life is hard enough already. If the government is offering you a rare break instead of figuring out a way to tax you more, then you clench on to it and never let go. It is very difficult for me to be an after tax millionaire. I’m already committed to the 401k millionaire route that it would be counterproductive to change course.

And I can attest and confirm that it’s much easier for me to go through with the tax advantaged route. It’s my protection money. It’s money that is invested in the “safer” route of the S&P 500 rather than any individual stock investments. That’s another reason I love my 401k investments, as well.

At What Age Should You be a 401k Millionaire?

So then the question everyone wants to know. When will I be a 401k millionaire?! What age?! The chart below is very telling. It is assuming a 7% yearly return.

401k millionaire: when you will get there.
Just 19 years to be a 401k millionaire.

Just contribute and max out your 401k for 19 years and there’s a very strong case you’ll be a millionaire! And by the way, this is JUST a 401k. This doesn’t even include any of your after tax accounts, HSA, Roth IRA, and the like. And on top of that, this doesn’t even include any company contributions.

This is the worst case scenario if your company does NOT offer any 401k matching. How great is that?! If you just max out your 401k, you could make the case you can spend the leftover money. Without having the need to depend on any matching programs to get there.

You can spend the leftover money on anything that you want. I personally would prefer to invest a good chunk of the leftover money as well. However, that is a personal choice that you would have to make. Keep in mind that a million dollars in 19 years is not the same as a million dollars today.

it’s going to be worth less than what it’s worth today. However, that still doesn’t mean that people in 19 years won’t think that being a millionaire isn’t worth it. It’s still going to be a lot of money then as well. It’s not going to be a trivial amount of money that people throw around in the water cooler without caring about it.

If the worst you can do is to be a 401k millionaire in 19 years, that’s a good thing. I would take that 6 ways to Sunday.

Don’t Discount Being a 401k Millionaire

401k millionaire isn't something to discount.
401k millionaire means something.

What’s great about being a 401k millionaire is that by the time distributions come around. you decide how much of it you want to take as income. If you just want to take the minimum amount required that you won’t owe any taxes on, well then great! You can absolutely do that. It’s your money, after all.

What’s bad about being a 401k millionaire is that you are subject to the required minimum distributions. When you reach a certain age, you HAVE to take distributions. The government forces you to distribute the money amongst yourself, against your will. That rule could change but I wouldn’t count on it.

401k’s are so important that it should be a consideration point for a job, as highlighted in my salary negotiation example. Companies do NOT make exceptions when it comes to 401k contributions. If your company takes 1 year to match your 401k contributions, that is non-negotiable.

They will not accelerate it and waive that waiting period for you. Why is that? It can actually be considered an unfair labor practice. I tried it on two different companies and it didn’t work and they cited the same reasons. However, that doesn’t mean that 401k’s aren’t important.

The account was literally designed to supplement (although it is replacing) pension benefits. Therefore, if it’s replacing something as valuable as a pension, then you should take advantage of it. You can be a 401k millionaire, it’ll only just be a matter of time. You’ll be surprised what you can accomplish.

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