The Number of 401(k) Millionaires Just Spiked. Here's How to Become One Yourself

Plenty of people enter retirement with nowhere close to $1 million in savings. And that's understandable. Your individual retirement account (IRA) or 401(k) contributions may end up falling by the wayside due to a host of factors, from emergency expenses to child care costs. 

But if you're convinced that it's just a tiny percentage of people who end up becoming 401(k) millionaires, you'd be wrong. Recent data from Fidelity shows that during the fourth quarter of 2023, there was a 20% uptick in 401(k) account holders attaining balance of $1 million or more compared to the previous quarter. 

Now, part of that may boil down to the fact that during the third quarter of the year, many 401(k) balances fell as a result of market conditions. And the market then soared at the end of the year.

But still, the number of 401(k) millionaires in the fourth quarter of the year was 11.5% higher than during the second quarter of 2023. And while stock market gains may be a big driver of that, it's also important to credit the effort of savers who made a point to fund their accounts and set themselves up to take advantage of those gains.

If you're eager to end up a 401(k) millionaire yourself, there's a simple strategy it pays to employ. And it could leave you sitting pretty by the time retirement rolls around.

Start early and load up on stocks

Some people don't manage to first fund a 401(k) until they're well along in their careers. You might spend your 20s paying off debt and spend your 30s saving up for a home and grappling with sky-high daycare bills. But if you wait too long to start funding your 401(k), you might hurt your chances of attaining that prized $1 million or more balance.

Over the past 50 years, the stock market has had an average annual 10% return, as represented by the S&P 500. It's important to note that 401(k) plans generally don't let you invest in individual stocks (like you could with a brokerage account you open on your own). But you can usually buy index funds (including ones that mimic the S&P 500) or mutual funds with a stock-focused strategy.

So, let's say you start contributing $500 a month to a 401(k) plan at age 40, and your portfolio gives you a yearly 10% return on average. By age 65, you'll have about $590,000, which is pretty impressive in its own right. However, it's not $1 million.

On the other hand, let's say you adopt that same stock-focused strategy that rewards you with a 10% yearly return on your investments, only instead of beginning to fund your 401(k) with $500 a month at age 40, you start at age 30 instead. By age 65, in that scenario, you'll be sitting on over $1.6 million.

Free money could help your 401(k), too

It pays to start funding your 401(k) early in your career and going heavy on stocks if you want your balance to eventually hit or exceed $1 million. But another way to help move things in a positive direction is to always snag the complete 401(k) match your employer is willing to give you.

That match might change from one year to the next. But keep tabs on it, because it really is free money for your retirement. 

And remember, just as you get to invest every dollar you put into your 401(k) from your own paychecks, so too do you get to invest the money your employer contributes to that account. So all told, if you start saving from a young age and also claim your full workplace match every year, you may end up a 401(k) millionaire well ahead of retirement.