How Many Years of Maxing Out a 401(k) Does It Take to Become a Millionaire?

If your retirement mission is millionaire or bust, your 401(k) can help you get there. And the fastest way to do it is to make the maximum allowed 401(k) contributions.

The question is: How many years of maxing out a 401(k) does it take become a millionaire? There are different answers because there are different contribution caps. You could max out your contributions. Or, you could max out total contributions, which applies to your own contributions plus your employer match. Once you turn 50, you could additionally make maximum catch-up contributions.

Read on for a closer look at these scenarios and the millionaire timeline for each.

1. Maxing out your own contributions

In 2022, you can contribute up to $20,500 annually to your 401(k) if you are under 50. That's equal to a maximum monthly contribution of about $1,708. This cap applies to your contributions only and not your employer match.

Image source: Getty Images.

With a compound interest calculator like this one, you can estimate the time it'll take to turn the $1,708 monthly contribution into $1 million. You will have to make assumptions about:

• How much you'll earn in employer matching contributions.
• The average annual growth rate of your 401(k) investments.

I can't estimate your employer matching contributions because I don't know your salary or your plan's matching rules. Accurately guessing your growth rate is also tough -- but there are some guidelines you can follow.

First, the average annual growth rate of the stock market is about 7% after inflation. If you are heavily invested in stock funds (as opposed to bond funds), it's reasonable to use 7% as your expected growth rate. If you have more bond funds than stock funds, you'll likely see a lower growth rate -- something closer to 4% or 5%.

The growth rate does influence your timeline. As you can see in the table below, growing your balance to $1 million should take 22 to 28 years if your investments are returning 4% to 7% annually.

Ddata source: Author calculations via Investor.gov.

Any employer match you earn would shorten these timelines. As an example, say you are earning $400 in monthly employer match. That would shave two years off the 7% timeline.

2. Maxing out total contributions

There is a different 401(k) contribution limit that applies to the total you and your employer contribute. In 2022, this total contribution limit when you're under age 50 is $61,000, or $5,083 monthly. Note that your contributions are still subject to the annual cap of $20,500 -- so the other $40,500 must come from your employer.

As you can see in the table below, contributing that much can carry you to $1 million in as little as 12 years.

Data source: Author calculations via Investor.gov.

You may notice that the timelines for different growth rates don't vary much here. What gives? In shorter timeframes, how much you contribute can be more impactful than the growth rate.

This is a good thing if you're on a shorter timeline. Say you're retiring in 10 years. You'd likely want to take a more conservative investment approach. You can do that and use higher contribution amounts to make up for the lower expected growth rate.

You would see greater variation across growth rates if you projected these balances out 20 or 25 years.

3. Maxing out total contributions after age 50

After age 50, you are entitled to make additional 401(k) contributions. They're called catch-up contributions and they raise your allotment for paycheck deferrals by $6,500 in 2022. That moves your contribution cap up to $27,000 and the total contribution cap up to $67,500.

The table below shows how long it takes to reach $1 million by growth rate when you max out total contributions of $67,500 annually.

Data source: Author calculations via Investor.gov.

A good conclusion to take from these numbers is that catch-up contributions are useful. Even if you don't start saving until you're 50, you can amass $1 million in about 10 years.

Your millionaire retiree timeline

Unless you have very generous matching rules, it should take 20 to 25 years of maxing out your 401(k) to reach a $1 million balance. Considering that your retirement should last 30 or 40 years, a quarter-century of big contributions should sound like a reasonable trade-off. In more concrete terms, you could kick off those max contributions today and be a millionaire by 2040.