In February, Fidelity Investments told Now It Counts that the number of 401(k) millionaires stood at 70,000, double of what it was in 2012. And that trend isn't expected to slow down with the new limits for your IRA or 401(k) plan.
The average age of the 401(k) millionaire studied by Fidelity over 12 years is 59, and they're someone who has worked for their company for more than 30 years and earned less than $150,000 a year. Not that everyone needs a million dollars for retirement... but just in case.
Do you have what it takes to become a 401(k) millionaire?
SAVING EARLY
What helps your million-dollar savings is that your money has a chance to grow to higher levels over time. This is because of favorable tax treatments in that you don't pay until after you make withdrawals.
CONTRIBUTE 10 TO 15 PERCENT
That includes the company contribution. Fidelity's 401(k) millionaires had an average company contribution of 5 percent. In addition, those millionaires deferred about 14 percent of their pay over the 12 years they were studied, amounting to $13,300 a year. That made their total savings rate 19 percent. IRS rules allowed people to defer up to $17,500 of their pay in a 401(k) account in 2014 and as much as $23,000 if you were 50 and older.
MEET YOUR EMPLOYER MATCH
When it comes to the millionaires, 28 percent of the money in their account came from the employer, which boosted annual savings by nearly $4,600. Many of the millionaires also benefited from profit-sharing contributions.
CONSIDER MUTAL FUNDS THAT INVEST IN STOCKS
The 401(k) millionaires had an average of 75 percent of their assets in company stock and stock mutual funds. They had a median return of 4.8 percent over 12 years. Coupled with the contributions of themselves and their employers, their account grew 8.75 percent a year.
DON'T CASH OUT WHEN CHANGING JOBS
You'll face tax liability early withdrawal penalties. You also lose the growth opportunity from that money. Since the average tenure of the 401(k) millionaires with their current employer was 34 years, most of them never even had a chance cash out.