Retiring as a millionaire isn't a pie-in-the-sky dream for many Americans. It's quite attainable with enough discipline. If your employer offers a 401(k) plan, the goal will likely be even easier. However, you'll need to use the retirement plan wisely.
Are you looking to become a 401(k) super saver (i.e., someone who maximizes how much they save for retirement)? Here are five strategies to help you reach a millionaire retirement sooner.
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1. Start saving early and automatically
Probably the most important thing you can do to become a 401(k) super saver is to start saving as early as possible. The more time your money has to grow, the more you'll have in retirement.
Many employers allow you to make your 401(k) contributions automatic. This is ideal because you won't miss money you don't see hit your bank account.
2. Consider choosing a Roth 401(k), if available
A Plan Sponsor Council of America survey in 2022 found that roughly 89% of employers with 401(k) plans allowed employees to put money in a Roth account. If you have the opportunity to contribute to a Roth 401(k) , it could pay off over the long run.
With traditional 401(k) plans, your contributions are tax-deductible. However, when you take money out, you'll have to pay taxes on all contributions and gains accumulated.
With Roth 401(k) plans, your contributions aren't tax-deductible. However, you won't have to pay any taxes at all when you withdraw funds for retirement. If you start saving early enough, the gains your Roth 401(k) account accumulates should be much greater than your contributions.
Another plus with Roth 401(k) plans is they aren't subject to required minimum distributions (RMDs) beginning in 2024 like traditional 401(k) accounts. This can also potentially lower your taxes during retirement.
3. Contribute at least enough to receive your company match
One of the best things about 401(k) plans is that many employers offer a company match . With these matches, employers will contribute to your 401(k) account based on how much you contribute.
For example, some companies contribute $1 for every $1 an employee contributes to their 401(k), up to a specified maximum. Others contribute a percentage of the employee's contributions.
You should definitely contribute at least enough to receive your company match. Otherwise, you'll be leaving free money on the table.
4. Don't borrow from your 401(k) or withdraw funds early
Many 401(k) plans allow you to take out a loan from your account. You then pay yourself back with interest, rather than pay a bank or other financial institution. That might sound attractive, but there's a big disadvantage: The interest you pay will often be less than the earnings you would have made by leaving the money in the 401(k) account.
Withdrawing funds early can be even more problematic. If you withdraw from a traditional 401(k) account before age 59 1/2, you'll have to pay a 10% penalty. If you withdraw earnings (but not contributions) from a Roth 401(k) before age 59 1/2, you'll also have to pay this penalty.
5. Take advantage of catch-up contributions
Catch-up contributions are intended to allow older workers to save more for retirement. In 2024, the annual contribution limit to a 401(k) plan is $23,000. However, anyone aged 50 or older can contribute an additional $7,500 per year, bringing the total contribution limit to $30,500.
If you meet the age requirements, it's smart to take advantage of catch-up contributions. The more money you save, the better shape you'll be in to reach a millionaire retirement sooner.
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