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Max out your accounts

Only 40% of the American workforce participates in the 401(k) program offered by their employers. That means a significant number of workers are missing out on the tax benefit — and so the retirement gap increases.

This is why the first step to being a 401(k) millionaire is to understand the program and maximize your use of it. Speak to a financial expert, account or your employer to see how you can participate and use this program to its full benefit.

Under IRS guidelines, the maximum contribution room for an employee is $22,500 for 2023. Employees over the age of 50 can make extra “catch-up” contributions under some circumstances, and there’s also a limit on how much the employer can match contributions.

Do your research and figure out how you can use this plan to boost your retirement.

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Trust the market

The 401(k) program is designed to be flexible: you can invest the contributed funds in any financial instrument. Most companies offer a range of options such as mutual funds, and they may include index funds, large-cap and small-cap funds, foreign funds, real estate funds and bond funds.

Investing in stocks could be the key to millionaire status for most savers. The S&P 500 has delivered a 10.13% compounded annual return from 1957 through Dec. 31, 2022. This double-digit growth rate has helped thousands of employees accumulate more than a million dollars in their 401(k).

Of course, past performance is not an indicator of future returns. But any investor seeking long-term growth in their net worth should certainly consider the track record of the stock market.

Stay invested for the long-term

Maxing out your 401(k) and investing in the stock market isn’t enough. For the power of compounding to have a tangible impact, you need to remain invested for extended periods. That means employing consistent dollar-cost averaging — i.e., repeatedly and regularly putting the same amount of money in the same investments over extended periods of time — regardless of market conditions.

A consistent and disciplined approach could take your 401(k) account beyond seven figures over time.

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Meet Your Retirement Goals Effortlessly

The road to retirement may seem long, but with WiserAdvisor, you can find a trusted partner to guide you every step of the way

WiserAdvisor matches you with vetted financial advisors that offer personalized advice to help you to make the right choices, invest wisely, and secure the retirement you've always dreamed of. Start planning early, and get your retirement mapped out today.

About the Author

Vishesh Raisinghani

Vishesh Raisinghani

Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.

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The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.