12 Steps To Grow Your 401(k) To $1 Million

Master the art of wealth-building and turn your 401(k) into a million-dollar nest egg.

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Updated July 11, 2024
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A 401(k) is an important piece of any retirement plan, which is why you might want to set lofty goals so you have enough money to retire stress-free.

But getting to that $1 million milestone can be daunting, and you may think it’s an almost impossible goal to build that much wealth.

But it can be easier than you think. Follow some of these simple practices and get on the road to $1 million.

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Sign up for your 401(k) as soon as possible

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You may think retirement is far away when you’re starting a new job and that you don’t have to worry about it in your first few years of working.

But it’s essential to start your 401(k) contributions as soon as possible to earn the maximum amount of money you can and grow your wealth sooner. 

Consistently contributing to your 401(k) over many years is a great way to make compounding interest work for you.

Contribute at least enough to get the full company match

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One benefit you might receive from your company or organization is matching funds for your 401(k) to help you boost your retirement savings.

Get the full company match if you can, as it’s extra money your company will give you to boost your retirement funds. Every dollar, even dollars from your company, will help you get closer to your $1 million goal.

Contribute regularly until you hit the annual cap

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You may be surprised to find out there's a limit on how much you can put in your retirement fund each year. It’s important to know the limits for your 401(k), IRA, Roth IRA, or other retirement investments to avoid penalties and other headaches.

You’ll also need to know the limits to get as close to them as possible or reach that maximum and boost your retirement accounts.

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Invest some of your contributions in stocks

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It’s wise to have a diverse portfolio that covers different asset classes instead of focusing on only one type, like bonds or commodities.

Consider putting some of your contributions into stocks, which may be a riskier investment than bonds but could also be a better option when you’re younger and can let those stocks grow over the long term.

Let time and compounding returns do the heavy lifting

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The great thing about compounding interest is you can set it and let it run, making you money without putting in more cash.

But the more cash you add, the more compounding interest you can earn on that cash. That’s also why you should put that money in as early as possible. 

The more runway you can give to your contributions, the more likely you’ll reach your investment goals.

Check your asset allocation at least once a year

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Things like compounding interest or investing in an index fund might make it sound like you can just put your cash in an account and forget about it.

Sit down at least once a year and review your accounts to figure out if you want to put money in different investments or rebalance your portfolio so it reflects your financial plan better.

It’s also wise to take more risks when you’re younger because you still have plenty of time to make up for any losses. Just remember to move cash into more steady investments as you get older.

Don't raid your 401(k)

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You may look at your 401(k) and be tempted to withdraw some of that cash early. After all, it’s a decent chunk of money that could be used for a down payment or to pay off an unexpected bill.

But it’s essential to keep that cash in your 401(k) or other retirement investments in the long term, not only because you’ll need it when you retire but also because of the cost of pulling it out. 

You could face a 10% penalty plus ordinary taxes when making early withdrawals from a 401(k).

Don't panic when the stock market declines

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The stock market has good times and bad times, and you must avoid panicking during the bad times if you want to build wealth.

Investors can get spooked when they see lots of red numbers in their retirement portfolios, but that’s not a great time to sell your stocks.

The market will eventually rebound, and you could lose money by selling in the dip and not being invested when the market recovers.

Don't forget about your 401(k) if you change job

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One of the great things about a 401(k) compared to a pension is that, unlike a pension, you can take a 401(k) with you to another company or organization when you leave.

Check with your 401(k) provider about a rollover 401(k) to keep your money invested even after you switch to a new company.

You can roll over a 401(k) with each job change, so feel free to move from one company to the next while rolling your money into your new 401(k) each time. You may also be able to roll it over into an IRA.

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Let’s say you put $50,000 into a high yield account at 5.00% APY at 30-years-old. Then, you contribute $5,000 a year, every year, until age 50. With interest compounding daily at that rate, you’d walk away with $303,466.67! But … if you start at age 45, you’d only have $91,898.37.

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Keep long-term goals in mind

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It can be tough sometimes when you look at your 401(k) and see your short-term gains or losses. Perhaps you had a bad year, and your account lost money, or you think you didn’t contribute enough.

But you need to invest in a 401(k) for the long term, so keep a good perspective about what your account will look like and what goals you will reach when you retire.

Adjust your contributions when you get a raise

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It’s wise to revisit your budget when you get a raise to find places where you can spend a little more, save a little more, and invest a little more.

A raise could mean more money for your 401(k) contributions, so check how much you’re putting in and if you can boost the amount of cash you're adding to your account each month.

Go above your company matching

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Company matching is a great employee perk and helps you build your 401(k) with cash from your employer, but you don’t have to be limited by that percentage.

Think about upping the percentage of your paycheck that goes directly into your 401(k), even if it’s above and beyond how much your employer will match. 

That extra cash can add up and help you get ahead financially (and closer to $1 million) in a tax-efficient manner.

Bottom line

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A 401(k) can be a great investing tool if you have a goal to reach $1 million in retirement savings.

It’s also wise to have other retirement investments, so consider your 401(k) and other retirement options when planning for retirement. You’ll also want to create an estimated retirement budget and adjust the costs as you move along in your working years to help eliminate money stress.

A $1 million portfolio is a good goal, but it could be more than you need or not enough, depending on your spending plans.

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Jenny Cohen

Jenny Cohen is a freelance writer who has covered a bit of everything, from finance to sports to her favorite TV shows. Her work has been featured in The Wall Street Journal, USA Today, and FoxSports.com.