5 Secrets of 401(k) Millionaires.

There are nearly 500,000 401(k) millionaires in the US, according to Fidelity. However, the average 401(k) balance remains much lower at $127,100.

If you’re hoping to join the former group, you’ll need the right investment strategy. Here are five things that could help you join the 401(k) millionaire club by retirement.

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1. Contribute early and often

Set up regular salary deferrals in your 401(k) as soon as you are eligible and can afford to do so. Traditional advice says to save 10% to 15% of your income for retirement each year, but it’s fine to start with less. Your early dollars will become some of your most valuable because they will be invested the most, so don’t put off saving simply because you don’t think your small contributions today count.

Most people shouldn’t worry about 401(k) contribution limits, although high earners should keep an eye on them. You can contribute up to $23,000 to a 401(k) in 2024, or $30,500 if you’re 50 or older. These limits may increase in 2025, but the IRS has not yet announced them.

2. Claim your 401(k) match whenever possible

Claiming your 401(k) match should be your top retirement savings priority every year, if you can afford to do so. If you fail to claim your pair, you’ll lose that money and the burden of saving for the future will be entirely on your shoulders.

Check with your employer to find out how much you need to contribute to get the full match. Divide this by the number of pay periods in the year to figure out how much you need to defer each paycheck.

You may also want to ask about the vesting program if you’re new to the company and don’t plan to be there long. If you quit before you are fully vested in the plan, you will lose some or all of your employer match. However, your personal contributions are always yours to keep.

3. Minimize your investment fees

Most 401(k)s give you a choice between a variety of mutual funds or index funds chosen by your employer. They vary in their risk tolerance, performance and the fees they charge. You need to weigh all of these factors when deciding which one is right for you.

It’s easy to forget about commissions because they come directly from your account, but they reduce your profits over time. Try to keep your total fees below 1% of your assets each year. Most mutual funds charge expense ratios, which are listed as percentages in your prospectus. This indicates what percentage of your assets invested in the fund you will pay to the fund manager each year.

Index funds are a great low-cost investment option if they’re available to you. They diversify your money among several hundred companies, and some charge as little as 0.03% in expenses — that’s $3 for every $10,000 you invest. you invested them in the fund.

4. Avoid emotional investment

Seeing their portfolios lose value can tempt some people to sell what they see as “underperforming,” but that’s not always the best move. All actions have some ups and downs. A bad quarter is not necessarily an indication of a bad stock. It’s important to think about the stock’s long-term growth potential when deciding whether to keep it in your portfolio.

If you’re tempted to make decisions based on recent performance, it’s best to limit how often you check your portfolio. A few times a year is fine for most people.

5. Keep your money invested as long as you can

For most 401(k) investors, contributions represent only a small portion of the final account value. Most of your money will come from your investment earnings. The more your savings are invested, the more you will generally earn. This is a big part of why early retirement contributions are so valuable.

Maximizing income also means avoiding early withdrawals. Taking money out of a 401(k) before you reach age 59 1/2 will trigger income taxes, as well as a 10% early withdrawal penalty in most cases. Even a 401(k) loan will hurt your savings growth, even if you pay off your balance with interest over time. Whenever possible, save for emergencies and other financial goals outside of retirement accounts so you don’t have to tap into them early.