Want to Be a 401(k) Millionaire? 3 Tips All Retirees Should Know

One of the best ways to make sure you're as financially prepared for retirement as possible is using retirement accounts. If you're going to be saving and investing for retirement (which you should be), you might as well get tax breaks along the way -- it's a two-for-one you can't beat.

The most popular retirement account is a 401(k) , mainly because it's offered through employers and allows you to passively put money away without much thought. As people set their retirement savings goals, with $1 million being a common target, it's common to wonder if it can be done with only your 401(k).

Simply put, for many people, the answer is yes. Here are three things you should know about becoming a 401(k) millionaire.

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1. Younger workers don't need to max out your 401(k) to reach the million-dollar mark

In an ideal world, everyone would make enough money each year to reasonably max out their 401(k). Unfortunately, that's just not the case. In 2024, the 401(k) contribution limit is $22,500, or $29,000 if you're 50 or older. For perspective, the U.S. median income sits well below $40,000.

The good news is that you don't need to max out your 401(k) to become a 401(k) millionaire; you just need time. Below is roughly how many years it'd take to hit $1 million by averaging 10% annual returns:

Calculations by author. Years rounded up to the nearest whole year.

In each scenario above, contributions are below the current annual limit and still managed to hit $1 million within a reasonable career timeframe. Of course, not everyone has access to a 401(k) throughout their entire career, so that can be limiting regarding time, but this shows just how possible being a 401(k) millionaire is.

It's also worth noting that the amount of time could change drastically (in either direction) based on your annual returns. I used 10% in our example because that's around the S&P 500's average over the long run, but you never want to use past performance to guess future performance.

If you have access to a 401(k), take advantage of it from the start, even if you think your contributions won't be "large" enough to make a real difference.

2. Low-cost index funds can be your go-to option

Your 401(k) plan gives you a set of investment options you can choose from. You can't invest in just any stock or exchange-traded fund (ETF) like you can within a brokerage account or IRA . Usually, these options include market cap-based index funds (large, mid, small), which you should take advantage of because of their low cost.

You may find that actively managed options like target-date funds -- which automatically rebalance to become more conservative as you get closer to retirement -- are on the expensive side. A passively managed index fund shouldn't be, however.

The difference between a few hundredths of a percentage point may seem ignorable on paper, but even slight differences can equal up to thousands over the course of a career. Contributing $12,000 annually and averaging 10% annual returns versus averaging 9.5% comes out to more than a $37,700 difference in 20 years.

3. An employer match is one of your best friends

An employer match is a 401(k) benefit you won't receive with other retirement accounts, such as IRAs. As the name suggests, an employer match involves your company matching your 401(k) contributions up to a certain percentage. Companies often match between 3% and 6%, but the percentage and criteria depend on the company.

The lowest amount you should contribute to your 401(k) is the maximum amount your employer will match. If they match up to 3%, the least amount you should contribute is 3%. If it's 5%, make that your minimum. Whatever the case, contributing less than your employer's max leaves "free" money on the table. Think about it as somewhat of an instant 100% return on an investment .

An employer match can be a boost on your way to becoming a 401(k) millionaire. Let's imagine a situation where someone makes $100,000, and their employer matches up to 5%. That's an extra $5,000 annually put into their 401(k) that now has a chance to grow and compound. According to the Rule of 72 , an investment can double in value in around 7.2 years, averaging 10% annual returns.

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