Unlock the Secrets to Joining the Growing 401(k) Millionaires Club!

In a remarkable turn of events, more Americans than ever are joining the ranks of 401(k) millionaires, thanks in large part to a booming stock market.

According to the latest data, the number of 401(k) millionaires has skyrocketed to 544,000 in just the third quarter of 2024, a significant increase from 497,000 just three months prior, as reported by a leading retirement plan administrator. This statistic only accounts for their account holders.

The count of Fidelity IRA millionaires has also hit a new high at 418,111.

However, it’s important to recognize that reaching a million in a 401(k) or IRA is an extraordinary feat for most Americans. The 544,000 millionaires represent just over 2% of all 401(k) participants at Fidelity.

But let’s set the record straight: a million dollars isn’t necessarily the golden ticket for retirement. In fact, many folks believe they need a lot more to truly enjoy their golden years. The majority of retirees manage quite well on less.

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“In this country, we have a fascination with the term ‘millionaire,’” remarks a certified financial planner. “It seems so monumental, so out of reach.”

Who wants to join the 401(k) millionaire club?

While Fidelity doesn’t insist that everyone aspire to be a 401(k) millionaire, they certainly highlight them in their quarterly retirement analyses.

“If it’s not in the press release, we’re going to get queries about it anyway,” says a vice president at Fidelity Investments.

That said, there is great merit in studying the behaviors of those who have achieved millionaire status in their 401(k)s, particularly if you aim to reach that financial milestone yourself.

The majority of these millionaires are Gen Xers or Boomers, who have typically been saving for around 26 years and contribute over 17% of their pre-tax income to their retirement plans.

“Their journey exemplifies the importance of staying the course,” the VP adds.

To inspire those on the path to millionaire status, here are some vital tips to help you build a robust retirement account.

1. Jump on that 401(k) bandwagon ASAP

Did you know that only about half of American households have retirement accounts? The sooner you get enrolled in a 401(k), the better your chances of becoming a millionaire down the line.

“The number one rule in retirement savings is to start early,” advises a certified financial planner.

2. Maximize your employer match

Most 401(k) plans come with an employer match – meaning your employer contributes additional funds to your retirement account based on your contributions. Typically, they match a portion of what you put in, often up to a certain percentage of your salary.

Don’t leave free money on the table! “By not taking advantage of your employer’s match, you’re forfeiting part of your compensation,” warns the financial planner.

3. Aim to save 15% of your salary

While common wisdom suggests saving at least 10% of your pre-tax salary, with an employer match, that can easily rise to 15% or more.

“We encourage people to aim for a 15% savings rate,” emphasizes another certified financial planner. “If done consistently over 30 years, you can achieve a seven-figure balance.”

Struggling to save that much right now? Consider increasing your contribution by a percentage point annually – many plans offer this feature to make saving easier.

4. Strive to max out your retirement contributions

If your budget allows, consider pushing your retirement savings to the maximum legal limit. For IRAs, the contribution cap for 2024 is set at $7,000 (or $8,000 for those aged 50 and over). For 401(k) plans, the max contribution is $23,000, or $30,500 for people 50 and over.

And don’t forget, contribution limits will rise in 2025, with even higher “catch-up” options for those aged 60 to 63.

“The ultimate goal for any retirement saver should be to max out their 401(k),” says the financial planner.

5. Don’t cash out your 401(k) when changing jobs

Studies reveal that many workers cash out small 401(k) accounts when transitioning between jobs, which can lead to the loss of thousands in compounded interest over time.

If you leave a job, experts recommend rolling over your 401(k) into either an IRA or a new 401(k) with your next employer.

In 2022, a coalition of retirement plan providers announced a collaboration to enhance the “portability” of small retirement accounts.

6. Resist cashing out during market dips

In times of market downturns, some retirement savers panic and sell, hoping to safeguard their investments from further depreciation.

However, if you aspire to be a 401(k) millionaire, it’s often better to weather the storm. A downturn may decrease the market value of your account, but it doesn’t affect the number of shares you own.

Think of your shares as chickens: during tough times, they may lose weight, but you still have the same number. One day, those chickens will grow strong again.

7. Avoid early withdrawals from your 401(k)

The 401(k) is structured to reward those who contribute diligently and penalize those who withdraw funds prematurely.

If you withdraw before age 59½, you face an additional 10% tax on the amount taken out, alongside your regular tax rate. So if you’re in the 15% tax bracket, you could lose 25% of your withdrawal before enjoying any of it!

There are exceptions for first-time home purchases or emergencies, allowing you to only pay ordinary income tax, but the idea is to keep your funds in your 401(k) until retirement.

8. Keep your savings momentum going

As highlighted earlier, the average 401(k) millionaire has dedicated approximately 26 years to saving for retirement.

Don’t let that statistic intimidate you! If you start saving in your early 20s and retire in your early 60s, hitting that 30-year mark in your 401(k) savings is entirely achievable.

For instance, if you earn $50,000 and contribute 10% to your 401(k) starting at age 25, with your employer providing a 50% match and assuming a 7% annual return with a 2% annual raise, you could reach a $1 million balance by age 55, based on a retirement calculator.

“It’s an age-old saying,” concludes the financial planner. “Put your time in the market, and avoid trying to time the market.”