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15 Secrets To Become a 401(K) Millionaire

Want to be a 401(k) millionaire? Here's how.

By Jenni Sisson

Edited by Eric McWhinnie

Updated Aug. 7, 2024

According to data from Empower, 9.1% of 401(k) accounts have topped $1 million. This number has been growing in recent years, despite the volatility in the market.

Are you an aspiring 401(k) millionaire? Here are a few tips on how to build wealth and reach that status as quickly — and painlessly — as possible.

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Start early

The earlier you start investing, the more likely you are to reach millionaire status. If you look at the exponential growth curve of investments, the first few years are lackluster. The sooner you get those years behind you, the sooner you can see more exciting growth.

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Don't try to time the market

This is Investing 101. Timing market dips and jumps is a fool's errand. Studies show that time spent with your money in the market trumps timing the best days in the market. Pick a good investing strategy and let it ride.

Don't try to beat the market

This is another well-known investing adage. Matching market gains is a much more reasonable expectation than picking the magic winning stocks for your 401(k). Even most active fund managers can't do it. A smart bet is to try to match the market instead with index funds or similar investments.

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Let’s say you want to invest $250, as an example.

With that amount, you could build a relatively diverse portfolio with an investment of $50 in a big tech stock, $50 in a retail stock, $50 in an energy stock, $50 in a manufacturing stock, and $50 in a bank.¹ This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice. To get stock reward, new customers need to sign up, get approved, and link their bank account. Stock rewards shares cannot be sold until 3 trading days after the reward is granted and the cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at <a href="https://robinhood.com/us/en/support/articles/open-account-pick-your-stock/">rbnhd.co/freestock</a>. Fractional shares are illiquid outside of Robinhood and are not transferable. Not all securities available through Robinhood are eligible for fractional share orders. For a complete explanation of conditions, restrictions and limitations associated with fractional shares, see the Fractional Shares section of our Customer Agreement. Robinhood Gold is offered through Robinhood Financial LLC and is a membership offering premium services available for a fee.

Even better news? Add a Robinhood Gold membership, and you’ll get access to 4.00% (as of 12/27/24) APY² Annual Percentage Yield. Rate valid as of April 12, 2024. To earn interest, a cash balance is needed. If you have a margin balance, there is no cash balance to earn interest. Interest rates for cash sweep and margin investing can change at any time. Fees may reduce interest earnings. on your uninvested cash³ Interest is earned on uninvested cash swept from your brokerage account to partner banks. Partner banks pay interest on your swept cash, minus any fees paid to Robinhood. As of Nov 15, 2023, the Annual Percentage Yield (APY) that you will receive is 1.5%, or 5% for Gold customers. The APY might change at any time at the partner banks' or Robinhood's discretion. Additionally, any fees Robinhood receives may vary and are subject to change. Neither Robinhood Financial LLC nor any of its affiliates are banks. All investments involve risk and loss of principal is possible. Robinhood Financial LLC (member SIPC), is a registered broker dealer. and the ability to buy and sell stocks 24 hours a day, 5 days a week.

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Set up automatic contributions

Putting your 401(k) contributions on autopilot is a surefire way to ensure you don't forget about saving. It also dissuades you from deciding other things are more important than saving for the future.

Get your full employer match

If your employer offers to match your 401(k) contributions, contribute enough to get your full match. Every dollar your employer contributes to your salary is money you don't have to.

Maximize your contributions

As of 2024, you can contribute $23,000 per year to your 401(k). If you contribute the $23,000 maximum each year and receive an 8% return, you'll be a millionaire in just under 20 years.

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Take advantage of catch-up contributions

If you're late to investing, note that employees age 50 and over can contribute an additional $7,500 each year in a 401(k). That might not seem like much, but it's $112,500 (not including any gains) between ages 50 and 65.

Diversify

401(k)s can hold a variety of assets, including stocks, ETFs, mutual funds, bonds, and cash. Making sure your funds are spread across an appropriate mix of assets is called diversification. It reduces the risk of losing money when your proverbial eggs are not all in one basket.

Take appropriate risks

Diversification can reduce the unnecessary risk of loss from a single stock or bond, but not every risk is bad. When you have many years left to invest, you can choose assets with greater potential returns because you can handle the ups and downs of the market and trust that it will gain over time. When you approach retirement, it's wise to shift funds to less risky investments.

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Be mindful of tax implications

401(k) accounts reduce your taxable income when you contribute, but there are also tax implications during retirement. At age 73, you must begin taking required minimum distributions from your 401(k), which can alter your tax bracket and taxable income.

Don't forget about old accounts

Do you have an old 401(k) lingering with an employer you no longer work for? Roll it over to your current employer's plan or an independent IRA so you can better manage your money. You may be able to keep it with your former employer, but independent plans may have a better range of investment options.

Don't rely on target date funds

Target date funds are designed for the set-it-and-forget-it investor who has neither the time nor the inclination to create their own portfolio. These funds tend to have higher fees than index funds and don't typically perform as well as a balanced 50/50 split between stocks and bonds.

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Mind your fees

Some fees are inevitable; the people who support 410(k) plans want to get paid too. However, choosing funds with low fees may help you maximize your investment returns. A 0.5% fee might not seem like much, but compounded over decades, it can make a substantial dent in your investments.

Try index funds

Unlike actively managed mutual funds, index funds don't attempt to beat the market's returns. Instead, they seek to track a preset index (such as the S&P; 500) and match its performance. Since there is no fund manager to pay, fees for these funds are often very low.

Increase your contributions with your raises

One way to up the amount in your 401(k) without feeling the pinch is to devote a percentage of each raise you get to retirement. Each time your pay increases, your 401(k) contributions will too. Since you didn't have the extra money before, paying it to your retirement account before you see it will make it much easier to sock away.

Bottom line

Becoming a 401(k) millionaire may not be easy, but it is simple. Focus on a diversified strategy that is appropriate for your time horizon. Contribute as much as you can consistently and watch compounding interest and dividends work their magic so you can build wealth while you sleep.

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