Good news, working Americans! There are more 401(k) millionaires than ever before.

The number of account holders with a balance of at least $1 million rose by 49,000 to 168,000 from the second quarter of 2017 to Q2 2018, according to a report from Fidelity Investments.

Jar full of hundred dollar bills

Image source: Getty Images

If you want to join the ranks of the 401(k) millionaires, you'll be happy to know that with some careful planning and a lot of dedication, it can be done. The bad news is that it may not be easy, especially if you're paying hefty 401(k) fees.

Understanding how fees impact your savings

All 401(k) plans have fees, yet 37% of Americans mistakenly believe they don't pay any fees at all, according to a report from TD Ameritrade. It's easy to understand why so many people don't realize they're paying fees. Your employer won't send you a bill for the fees you incur; instead, those costs are automatically deducted from your investment earnings, so you may not realize how much you're paying -- or even that you're paying them at all.

How much you pay in fees depends on your plan, but there are two general types of costs: administrative fees and investment fees. Administrative fees are the general expenses involved in the upkeep of a 401(k) plan, such as record keeping, customer support, and legal services. Investment fees, on the other hand, are what you pay for the specific investments in your plan. The expense ratio is the most common fee you'll see listed in your plan. According to research from the Investment Company Institute, the average expense ratio is roughly 0.48% -- meaning that if you have $100,000 in your 401(k), you'll pay $480 per year in fees. This number can vary, though, depending on your specific plan: If you work for a large corporation with thousands of 401(k) participants, you may pay less than you would if you worked for a small start-up with only a couple dozen employees.

Paying a fraction of a percent in fees may not sound like a lot, but as your retirement savings grow, the fees add up. For example, say you're just starting to save for retirement. You have nothing stashed away currently, but you're contributing $2,000 per year (or about $166 per month) and earning a 7% annual rate of return on your investments. In one scenario, you're paying 1% per year in fees, and in another, you're paying 2% annually. In scenario one, you'll end up paying roughly $92,456 in fees over 40 years, and in scenario two, that number jumps to $161,758. So while 1% may not seem like a big difference, it can add up to tens of thousands of dollars over the course of your career. 

To find out how much you're paying in fees, you can consult your plan's prospectus. But because this document is filled with financial jargon and legalese, it can be difficult to decipher on your own. You can also talk to your plan administrator to discuss how much you're paying. Once you're armed with that knowledge, do some research on other types of retirement accounts -- namely IRAs -- to see if you could be paying lower fees somewhere else. The average 401(k) plan charges annual fees of around 1% of total assets managed, according to the Center for American Progress, with smaller companies (those with fewer than 100 employers) charging slightly higher fees of around 1.32% per year.

Because you're typically stuck with the investment options your 401(k) plan provides, you may not be able to lower your fees. If you're paying too much and there are other options that could save you money, it may be wise to consider moving your investments. Keep in mind, though, that fees are just one part of the equation. If your employer offers matching contributions, those can more than make up for higher fees. Still, if you're unhappy with your 401(k) and are looking for other investment options, it's wise to look for one with lower fees.

On the road to becoming a millionaire

Once you've decided on a retirement fund that is fee-friendly, it's time to figure out how much you need to contribute to achieve millionaire status.

The best-case scenario is one in which you're investing your money in a 401(k) that offers employer matching contributions. Not only do matching contributions allow you to potentially double your investments, but 401(k)s also have higher yearly contribution limits than traditional IRAs and Roth IRAs -- $18,500 per year for 401(k)s, compared to just $5,500 for IRAs (plus an additional $6,000 per year for 401(k)s if you're aged 50 or over, compared to just $1,000 extra per year for IRAs).

If you're moving your investments to an IRA with lower fees, you'll have to decide exactly how you want to split up your money. For example, you may choose to contribute enough to your 401(k) to earn the full employer match, then stash the rest of it in your IRA. If you still have money left over after you max out your IRA, you may put any leftover income in a taxable brokerage account. If you have your sights set on saving $1 million by the time you retire, this may be the route to go, because you'll likely need to save more than the $5,500 per year you're allowed with an IRA.

Exactly how much you'll need to contribute per month will depend largely on your age. The earlier you start saving, the better shape you're in -- and the less you'll need to save each month to see significant returns.

Say you currently have no retirement savings, you want to retire at age 65 with $1 million, and you're earning a 7% annual rate of return on your investments. Here's how much you'll have to save each month depending on the age you start saving:

Age at Which You Start Saving Monthly Contributions Total Savings at Age 65
25 $405 $1,006,635
30 $585 $1,006,838
35 $855 $1,005,535
40 $1,275 $1,004,023
45 $1,960 $1,000,396
50 $3,200 $1,001,164
55 $5,820 $1,001,150

Source: Author's calculations.

When you wait longer to start saving, it becomes exponentially more difficult to catch up to where you'd be if you'd started earlier. So even though five years may not seem like a very long time, if you're determined to reach the $1 million mark by the time you retire, you may need to save hundreds (or thousands) of dollars more per month to reach your goal if you wait too long.

If your employer offers matching 401(k) contributions, you may not need to save so much on your own. For example, say in this scenario you're earning $50,000 per year and your employer will match 100% of your contributions up to 3% of your salary. That amounts to $1,500 per year, or $125 per month. While you'll still need to contribute most of the money yourself if you want to reach $1 million, that extra money from your employer will go a long way. Over the course of 10 years, the match alone would add up to $21,500, assuming 7% returns. Over 20 years, you're looking at an extra $63,800.

Reaching $1 million in savings won't be easy -- especially when fees could cost you tens of thousands of dollars -- but that doesn't mean it can't be done. The first step is setting your retirement fund up for success by finding a fee-friendly account, then start saving as early and often as possible to give your money the most time to grow.