Three secrets of 401(k) millionaires

Becoming a 401(k) millionaire is the retirement dream for many Americans. 

However, many do not come even close to this figure with the the average workplace-retirement account for clients aged 65 or older sitting at only $272,588, according to pension provider Vanguard. 

Indeed, even the median balance is much smaller, at $88,488, showing how much the largest accounts can skew the average higher. 

Now those who have managed to stash away the coveted seven figures worth of cash in their 401(k)s reveal the three secrets that helped them do so. 

In 2024 workers can contribute up to $23,000 a year into a 401(k)

1. Max out contributions EVERY year 

Building a million-dollar retirement account is tough even for high earners because of restrictions place on contributions.

In 2024 workers can contribute up to $23,000 a year into a 401(k) having risen slightly from $22,500 in 2023.  

The cap is adjusted in accordance with inflation each year, having risen from just $9,240 in 1994.

This means that if a worker had contributed the maximum amount each year in line with the cap rising, they could have contributed a total of $449,480.

This figure could be helped by employer contributions which many companies match up to 6 percent of the employee's salary. 

2. Making wise investment decisions 

While making the maximum contributions is a great start, in order to boost the cash's return potential it must be put to work. 

This means making choices to maximize growth while minimizing the risk. 

Options for low-cost index funds have expanded rapidly over the years.

Most larger platforms offer at lease a couple of passively managed funds that track the likes of the S&P 500. 

While actively managed funds are also an option they tend to underperform the wider market and come with heavier fees that can eat into returns. 

Many 401(k) millionaires understood that by choosing simple, low cost funds they can let the market works its magic. 

The average 65 and over retirement account is worth $272,588, according to Vanguard 

3. Time 

Becoming a 401(k) millionaire doesn't happen overnight, it is a long-term project over several decades. 

With an annuals stock market return of 10 percent, and maximizing out contributions it would still take at least twenty years to create a million-dollar account. 

Compound interest and banking stock market returns over decades can do a lot of the heavy lifting. 

A $10,000 investment in the S&P 500 back in 1994, for example, would be worth roughly $180,000 today according to mutual fund company, Hartford.