Could Have Been A 401K Millionaire By 40 Had I Kept My Job

Now that I'm focused on retirement once again, I've been doing a lot of planning for what's next. One of the key items on my pre-retirement checklist is ensuring I have the right asset allocation. As I was reviewing my various portfolios, I realized that I could have been a 401k millionaire by 40 had I stayed at my job!

Based on my recommended 401K By Age post, I firmly believe all of us will be 401k millionaires by 60 if we max out our 401k. With many employers offering company matching or profit sharing, becoming a 401k millionaire should be an inevitability for most people.

Let me share with you how I could have been a 401k millionaire and what happened to my 401k once I left my job in 2012. This will be an interesting case study for those of you who are thinking about retiring, joining a startup, or becoming an independent contractor.

We'll also review how much money you should have by age in taxable investment accounts if you want to retire early. Because at the end of the day, it's best not to touch your 401k before 59.5.

Could Have Been A 401k Millionaire By 40

Losing a steady salary is the most obvious reason to not retire early. In 2012, I gave up a $250,000 base salary plus any discretionary bonus. Looking back, that seems like an irresponsible thing to do for 34-year-old. But, I was no longer happy. Therefore, instead of complain why life wasn't fair, I decided to quickly make a change.

Losing annual profit sharing was also a huge loss. For the last several years, I was receiving over $20,000 a year in profit sharing that was deposited into my 401k. In 2022, the maximum amount an employer can contribute to your 401k is $40,500 if you contribute the employee maximum of $20,500.

When I left work in 2012, I rolled over my 401k into an IRA. Once it was rolled over, I couldn't contribute new pre-tax money to my IRA anymore due to income limitations. Even if I could have contributed, the maximum was $5,000 in 2012 and only $6,000 today.

Therefore, all I could do was make some investment changes to try and boost returns. I didn't remember what investments I had made until this post. But, I did know that I didn't want to pay active fund management fees anymore. Not having to pay active fund fees is one of the benefits of an IRA. You can buy individual securities, index funds or ETFs.

Current Value Of Rollover IRA (Old 401k)

Below is a snapshot of my rollover IRA. Based on the details, it looks like my 401k was worth about $440,000 in 2012 when I rolled it over. The rollover IRA has since appreciated by 115.39% without any contributions. Further, the composition is 51.47% equities, 41.58% fixed income and 6.98% cash.

A 115.39% return over 8.5 years means a 10% compound annual growth rate. 10% is inline with the historical return average of the S&P 500. Therefore, the performance is OK and nothing special. I also just sold about $65,000 in S&P 500 index funds for reasons I'll share below.

If I had stayed employed until now, I would have continued to max out my 401k and receive corporate profit sharing. Therefore, I would have had at least $35,000 in annual contributions for eight more years. $35,000 X 8 = $280,000. The $280,000 would likely have grown to $350,000+ as well.

Therefore, leaving my job not only cost me $2,000,000 in lost salary + bonus, it also cost me $350,000+ in lost retirement funds! My 401k would have been worth about $1,000,000 at age 40 and over $1,250,000 today! Damn!

Why did I ever leave my job to pursue my dreams with my one and only life? I should have just gutted it out until at least 40, like I had originally planned. Then, I could walk around with my chest puffed out thanks to being a 401k millionaire.

Composition Of My 401k / Rollover IRA

What's interesting about my rollover IRA is that the Asset Class split is misleading. What is considered Fixed Income is not bonds. What I really hold are equity structured notes. Structured notes are derivative instruments that often provide a hedge.

When I left work in 2012, I was understandably uncertain about my future. At 34, I had just torpedoed my salary and could only rely on my passive income and unimpressive online income to keep me afloat. We had also gone through the worst downturn several years prior.

Therefore, instead of investing naked long equities, I bought $150,000 of a S&P 500 structured note at some point with downside protection. In exchange for the protection, I gave up some annual dividends. But, that's fine because if there was no downside protection, I wouldn't have had the confidence to invest $150,000 in the first place.

When it comes to investing, there has to be some trigger that pushes you over the edge to invest. The fear of losing money is why so many people end up hoarding cash. Below is a snapshot of my main equity structured note that is now worth $346,425. I must have invested in 2H2013 when the S&P 500 was around 1,800.

100% Equities

Upon review, my entire Fixed Income asset allocation is comprised of three equity structured notes. Therefore, before I sold some S&P 500 index funds, 100% of my rollover IRA was in equities! Today, 93% of my rollover IRA is in equities and 7% is in cash.

Frankly, I did not fully realize this was the case because I've been focused on managing my taxable brokerage accounts that spit out dividend and municipal bond income. In total, I have three taxable brokerage accounts to manage. I had moved assets over to a new bank to get relationship pricing when I refinanced a mortgage in 2019.

If I had paid closer attention to my rollover IRA, I may have sold some equities back in 2019 to get closer to a 80% equities / 20% fixed income asset allocation. The asset allocation would have still done well since bonds boomed in 2020.

With this account, my plan is to gradually sell more equities the higher the S&P 500 goes until I have a 80/20 equities/fixed income split. Once I hit age 50, I'll drop the split down to 70/30. I'm following the Financial Samurai asset allocation model from here on out.

Main Equities Winner In My Rollover IRA

Could Have Been A 401K Millionaire Had I Stayed At My Job

Apple is my main winner, up 448% since purchasing $38,269 years ago. If you can't land a job at a firm you want to join, then you might as well buy some of their stock. It's one of the best money-making solution after being rejected by a company. This way, you benefit from their success and feel good knowing their employees are working for you.

Now that I think about it, I'm wondering why my rollover IRA isn't up even more given the performance of Apple and my main structured note? The answer must be that I executed some poor trades years ago that lost me lots of money.

One of the dangers of having a rollover IRA is that you can trade as much as you want without any tax consequences or fees today. Given most active traders underperform, excessive trading almost always hurts performance.

Buying a long-term structured note forced me to stop trading. I couldn't redeem my structured note without receiving a discount. Therefore, I just sat tight with that portion of my funds. Then several years ago, I decided I would just ignore the rest of my portfolio.

One interesting thing to note is that these structures notes are less volatile than the market. For example, when the market crashed by 32% in March 2020, my structured notes declined by less than half as much. When their terms end, the true value of the structured notes will be revealed. Therefore, there should be some upside to roughly 41% of my IRA upon maturity of these notes.

Lessons Learned From Almost Becoming A 401k Millionaire

If you want to become a 401k millionaire, let's review some key points:

  • Trust the process! If you max out your 401k for 20+ years, you will mostly likely become a 401k millionaire.
  • Before leaving for retirement, calculate the lost healthcare and retirement benefits you will be missing. They will surely add up over time. My family now pays about $2,250/month in unsubsidized healthcare premiums. Early retirement is not cheap, which is why I found a way to earn supplemental income online and offline.
  • If you like your 401k, you can usually keep it. If you don't like it, roll it over to an IRA and make your own investments. Just don't trade too much. Focus on asset allocation and invest for the long term.
  • Hoarding cash will likely cause you to underperform over time. If you are afraid of investing, find an investment that gives you downside protection in exchange for giving up some upside.
  • The opportunity cost of not investing because you bought something you don't need can grow huge. For example, the average price of a new car is about $38,500. That's the amount I invested in Apple stock which is now worth over $200,000. Think twice before spending beyond what you need.

Below is a base case guide for how much money you should try to accumulate by age in you pre-tax and taxable accounts. Ideally, you want to eventually have 2-3X more in your after-tax accounts than in your pre-tax accounts. This way, you can retire early and feel good knowing that you've got “bonus funds” from your 401k once you turn 59.5.

After-Tax Investment Amounts By Age To Comfortably Retire Early

Final Lesson About Growing Your 401k After Leaving Your Job

When you retire early, a lot of things will swirl in your head. Perhaps one of the last things you will think about is trying to save more for retirement because you have presumably saved enough.

I was relatively confident I had enough saved for retirement when I left. Therefore, I didn't bother finding alternative ways to contribute to a 401k for a year and a half. My thought process was that if I left my then $440,000 401k portfolio alone, I should have plenty by the time I turn 60.

The thought process has turned out correct so far. But, since I didn't think about contributing to a tax-advantageous retirement account, I didn't open up a Solo 401(k) until 2014.

If I was on the ball, I would have opened up a Solo 401k at the start of 2013 and contributed the maximum $17,000 + 20% of operating profits.

From 2013-2017, I did some part-time consulting as a freelancer for Personal Capital (sold to Empower), Motif Investing (sold to Charles Schwab), and Sliced Investing (morphed into Indio and then sold to Applied Systems).

It was a good time to experience the startup life so I would never be left wondering. I had this fear of having no answer when my kids or grandkids would ask me how startup life was in San Francisco back in the day. Now, I've got a whole compendium of posts they can review.

The Real Average 401k Balance Is Higher Than Reported

So this begs the question, am I a 401k millionaire given my Solo 401k is worth about $245,000? The answer is no!

According to the way things are tracked by 401k providers and the government, my 401k balance at age 43 is only $245,000. The ~$940,000 rollover IRA does not count. Therefore, I may have to delay retirement and keep hustling!

Based on the average 401k balances by age data available, there's a good chance the data is underreporting true average 401k balances. The median and average 401k balances in the chart below have always seemed a little light. Wouldn't you agree?

401k by age recommendation guid

For example, you might have three different 401k plans each with $400,000 balances due to three job changes over 25 years. Your true total 401k balance is $1,200,000. However, the data will only see and report three $400,000 401k balances.

Let's not make excuses though. According to the Fed, the average American is now a millionaire as of 2022. Real estate, stocks, and business equity were the biggest drivers of wealth for Americans since 2019.

Got To Keep Saving And Investing

After writing about personal finance for so long, I strongly believe there is much more wealth out there than we realize. You can choose to follow the reported median or average retirement balances as your guide. But the median and averages are disappointingly low. Always shoot to be far above average with your finances.

After all, you're reading Financial Samurai! If I can't get you to achieve financial freedom faster the average person over the years, then I have been wasting my time.

If you keep maxing out your 401k for 20 years, I strongly believe you will become a 401k millionaire. And when you do become one, please let me know how it feels!

Finally Made 401k Millionaire Status

My rollover IRA, which was my 401k, finally hit the $1 million mark on July 13, 2021. Therefore, I'm OK to say that I've finally reached 401k millionaire status.

My Solo 401k is roughly $255,000 followed by $370,000 in my SEP IRA. Therefore, my combined tax-advantageous retirement accounts is over $1.5 million.

Because I can no longer contribute to my rollover IRA, my goal is to continue contributing as much as possible to my Solo 401k and SEP IRA.

At the same time, I will be buying rental properties to boost cash flow in this low interest rate environment. I'm positive on the housing market and believe it has years to run.

Diversifying Into Real Estate

Although I'm finally a 401k millionaire at age 44, I'm looking to actively build my real estate portfolio to diversify, dampen volatility, and take advantage of rising rents.

In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms.

With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common. Therefore, my plan is to become a real estate crowdfunding millionaire over the next couple of years.

Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore. 

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the easiest way to gain real estate exposure. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio. 

Invest In Private Growth Companies

Finally, millionaires love to build businesses and invest in private business. therefore, consider diversifying into private growth companies through an open venture capital fund.

Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment. 

Check out the Innovation Fund, which invests in the following five sectors:

  • Artificial Intelligence & Machine Learning
  • Modern Data Infrastructure
  • Development Operations (DevOps)
  • Financial Technology (FinTech)
  • Real Estate & Property Technology (PropTech)

Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.

The First Million Might Be The Easiest

Your Chances Of Becoming A Millionaire By Age, Race, And Education

Readers, are you a 401k millionaire? Could you have been a 401k millionaire had you stayed at your job longer? How many 401k accounts do you have? Do you think 401k wealth is underreported?

64 thoughts on “Could Have Been A 401K Millionaire By 40 Had I Kept My Job”

  1. 1 million pre tax 401k take out 5% a year then pay taxes on it what do you really net a month?

  2. Money in your retirement account is not cash flow. So what if you could have had 2 mil in your 401k if you kept working. There is a difference between 2 million total and 2 million coming in per year. You would not have 2 million a year in cash flow coming in. Therefore, this is flawed and neglects that you are looking at money from a water pitcher instead of a faucet if you know what I mean.

  3. Why didn’t you invest in tesla after quitting? i woud’ve put 100K into tesla stock in 2015 from my ira

    1. Not smart enough. Instead of only being up several hundred thousand I could have been up millions. Hence, the need to keep on grinding.

      How much did you and invest and how much are you up? Did you retire early as well?

  4. Super heavy in 401k. 1.2m out of my 1.9m net worth. Always did a great job in saving into the 401k even from age 19 when i became able to at my job. Unfortunately didnt save enough after tax when we had kids etc. We also chose for my wife to stay home with the kids which I wouldnt go back on that decision.

    46 now and would like to retire to step down into an easier lifestyle but its much more difficult with all the money tied up in 401k. Wish they would make easier to get at some of it.

    Thanks as always for the posts and guidance.

  5. It is a 10 percent penalty and if you are truly miserable and have had enough, i don’t see this huge harm if you structure it properly and can live modestly to keep you in lower tax brackets–plus there are some options to get money out (72T, post 55 with same company and others). 30% is 30% and whether part of that is a penalty, I have come to peace with it. I feel for people who are miserable and hanging on for 10 or more years to avoid the penalty–life is short and worth looking at the big picture.

  6. Sam,

    I really cannot thank you enough. You and your writings have helped me set my course in life financially and have also given me so much confidence in what I am doing. I know your kids will thank you later, and I hope my kids can thank you too. We are so grateful for your writing over the years, and your discipline and dedication in helping others achieve financial independence. I will read anything you post no matter if it is only once a week or if you take a sabbatical. You’ve got a loyal and indebted fan forever.

    Forever grateful,
    Peden (fellow Trive grad) and Quinton (me)

    1. Thank you for reading! I appreciate your kind words and encouragement. They are very motivating for me to keep going, no matter how tired I am.

      As I continue to review all that has transpired since 2009, the one reoccurring mantra keeps popping up: Trust The Process!

      If the direction is correct, sooner or later we will get there.

  7. I’m soft on the 401k side (234k) of my overall net worth (2.2 Mil) and retirement plan. However, reading about the successes of the other readers and Sam’s insight is really enjoyable and motivating. The projection tool on my IRA website has me at IRA millionaire status by 63. I believe by this age, my overall NW will be in 5 mil realm.

    I attribute my 401k non- millionaire status to starting up and building my insurance business in my late 20s (which kicks off 200k+ per year in residual income) and then going full bore to buy single family rental houses in 2010, 2011 and 2012 (in my mid 30s). Over the last couple of years, I’ve maxed my Simple IRA and made an employer match to myself, so I’m now really trying to improve this portion of my total NW and retirement plan.

    My retirement goal is to live on total passive income of incoming rents, wife’s pension and dividends/interest from savings and investments, and whatever is available via social security. I hope to never touch my principal and only tap my IRA due to RMD.

    1. “My retirement goal is to live on total passive income of incoming rents, wife’s pension and dividends/interest from savings and investments, and whatever is available via social security. I hope to never touch my principal and only tap my IRA due to RMD.”

      Jim, we are kindred spirits as these are my goals as well. I am fully retired but my wife expects to work another 5 years. We both have nice pensions from previous employers that are now paying out fully for both of us, solid projected SS payouts for both of us that we intend to defer until 70, dividends and interest on investments, and we both have executive deferred compensation plans. Mine runs for another 11 years and hers will start when she retires in 5 years and run for 10 years post-retirement. And then we will have ample RMDs, most of which we plan to simply re-invest.

      Like you, we hope to never touch the principal and watch it continue to grow in support of future family generations.

        1. Awesome, PaperTiger. You have created a fantastic situation! I can only hope (and plan) to be there one day!
          Sam, as for our situation, my wife and I actually have a little fun with her employment situation (Teacher with Master’s Degree). We basically understand that her income helps a little with some household utilities, daughters sports (club volleyball, soccer, HS sports fees) but is Primarily there for the Public Employee Retirement Account (PERA). In my opinion, there is absolutely NOTHING in the private sector, that compares to these types of retirement accounts.
          I went so bold as to say, I don’t care what you do with your paycheck, I just count down to her 30 year tenure mark. She will hit this a week before she turns 56 (a little under 10 years from now). This next decade will be absolutely pivotal for us, as all 3 daughters will be out of college, our youngest will be 24 years old and if our savings and investments project out correctly, we’ll have more than enough to retire if we choose to at that point.

          1. My mom is a retired teacher-and the pensions are wonderful. It’s a reason teachers work so hard to get to 30 years. My mom didn’t save like my husband and I are saving, but that pension is rock solid. Excellent supplemental health insurance, too. Medicare doesn’t cover many medical needs, but her insurance is excellent. That’s going to be an issue for my husband and I as we retire.

  8. Sam, thank you for the chart “After-Tax Investment Amounts By Age to Comfortably Retire Early”. In early 2021, our household investment assets and cash passed the $3 million mark (tracked by Personal Capital). The Pre-Tax makes up 2/3 while the after tax makes up 1/3. We planned to retire when we reach $4 million in investment assets (hopefully soon). With the investment heavily loaded to the “Pre-Tax” investment, I was planning on taking the 72t to cover 2/3 of our annual income need and 1/3 from the after tax investments. My investment make up is the opposite of the “Age 50” scenario in your chart. Do you see any potential problems with retiring early with “Pre-Tax” and “After-Tax” switched? Thanks for your help.

    1. How old are you now? I would do your best to ramp up after-tax contributions as much as possible until you hit that $4 million.

      Using rule 72 works. However, it tends to be painful to draw down principal after a lifetime of saving. It is much easier to live off the passive income your taxable investments generate.

      For example, I have NO PROBLEM using rental income or dividend income to pay for living expenses. But ask me to withdraw principal from a 401k I have only contributed to since 1999/2000 would be almost impossible.

      1. Hi Sam. I will be 44 in June. We have a rental property, but still have mortgage on it and does not generate income as rental covers the mortgage+insurance+property taxes+HOA.

        We’ll try to ramp up the after-tax contribution more towards the $4 million. It was really easy in 2020 as there were no family vacation expenses and much less restaurant expenses and we practically saved all of my wife’s salary in the after-tax accounts.

        Thanks for your advice as always.

  9. $4.1m balance in 401k after 35 years. Vast majority of that was putting in pretax max along with 6% match although i did do the supersized contribution when that opened up a few years ago. Just have to stick with it. Moved my equity percentage down over time and currently at 62%. This is a great tool for retirement. Plan to let it grow til 72.

  10. Big fan of after-tax contributions to a 401(k) on top of deferrals. Tucking away as much as possible in a Roth is the way to go. Written a few of posts about 401(k) after-tax issues / features including the true-up and in-plan Roth IRA conversion.

    Only question is – will the government change the tax structure on Roths?

    1. I feel fine. It’s just kind of jolting to see how much salary and lost investment money for leaving work so early.

      Folks who are considering the same need to beware.

      Time moves fast and slow.

  11. Hey Sam (and community)

    Are there any companies out there you’re aware of that have great company matches for lower middle class workers? I’m fine where I am at on my financial journey so far but also only receiving FOUR % on my company match. I feel like most companies I’m aware of are doing anywhere from 4-8%.

    Thanks and good luck to all

      1. Instead of maxing my 401k, my current allocation is about:
        – $8000 to 401k
        – $6000 to Roth IRA
        – $3600 to HSA
        – $3000+ to taxable brokerage account (undetermined due to saving for a ring AND down payment currently)

        Seems good, right? Just looking for some affirmation :)

  12. Ms.Conviviality

    All this talk about $1M+ 401Ks gave me FOMO. I had to reread your article about how to value a pension to feel better again. My pension is worth $1.2M and I can start collecting full benefits at age 52. :)

  13. $1,800,000 in my 401k. 27 years with the same company. Will be 50 at the end of the year. Have maxed out for the last 15 years or so and I’m doing the catch up this year. Have a pretty good match from the company. Crossed the $1 million mark on 1/2/18.

  14. I max out my tax advantage space. But, I also did the math and figured out that even if I didn’t add another dollar to my retirement accounts, I would probably have enough to retire and survive due to compound growth.

    I still max my traditional TSP to get the up front tax cut. I make too much to take a traditional IRA deduction so I do Roth IRA additionally. I’m not worried about “locking up my money” because of the 72t distribution option.

    Now I’m focused on strategically spending money to improve quality of life. I realized that my quality of life has been downtrending since about 2017 due to not spending money and certain lifestyle decisions.

    1. I hear you man. And, I bet you are much wealthier now compared to 2017 too right?

      The problem with super savers and investors is that we tend to lag way behind where our wealth will dictate our spending.

      1. Kevin Coffman

        “The problem with super savers and investors is that we tend to lag way behind where our wealth will dictate our spending.”

        This is a super underrated point.

        1. Yes! And thanks.

          Ideally, we will constantly consume to where our net worth will grow. But I’m sure many of us are stuck consuming based off much lower net worth levels.

          Old habits die hard!

  15. Being a 401k millionaire is overrated. The million dollars is tied up until 59 1/2. I began reading your posts years ago and decided then that, in order to retire early, you need both taxable and tax deferred accounts. Maybe you could write an article on the sweet spot between the two in order to retire early. Who cares if you have a million dollars in a 401k at 40. You can’t retire early if you have no passive income in a taxable account? If you want to exit the rat race early, you need to think beyond 401k millionaire.

    1. Becoming a 401k million is still a good milestone to achieve that will provide comfort post 59.5.

      “ Maybe you could write an article on the sweet spot between the two in order to retire early.”

      Check out this post! I even created a chart for you on how much you should aim to accumulate in your taxable accounts for passive income.

      There are even links in this post that go through the methodology in more detail.

    2. Don't have 2 nickels to rub

      I would agree with misty to keep in mind the different saving vehicles for diversification for retirement and not just focus on maxing out the 401k. I know Sam has mentioned many times other considerations for investing. Keep in mind tax ramifications down the road. As most people like to say, I want to keep what I have made. But remember the government says we keep what is our share.
      Everyone works hard for their money, but to see a lot going to taxes in their later years and during the years of not working can be painful. Yes definitely save when you are young and have time on your side, but keep in mind tax strategies for the future.
      Currently 44 single, net 1.1k in stealth wealth of which more than 60% in 401k. Intend to retire in 10yrs and aim 0 taxes to be paid on SS when recieving at 70.

    3. Actually, its not tied up till 59.5. You can do a 72t withdraws without penalty. For example, if you had $1m in a 401k at the age of 50, you could do about $40k/year thru a 72t withdrawal – only pay normal taxes.

  16. We had two family members contributing to 401k’s. We didn’t always contribute the max, but did in later years. Now we only have one contributing to a 401k. A 401k is the simplest way to double your money quickly with the company match and deferred taxes.

    At ages 40 and 41, just last month our 401k’s just crossed the $1 million mark! Its a nice cushion, but seems so far into the future that we will actually use this money.

  17. Sam,

    Do you advise converting most of the tax referred to Roth-like investments? I was gleaming through “The Power of Zero” and the author advises that we convert most of the pre-tax investments to post-tax investments because the income tax rate will go up. What do you think, sam?

      1. Thanks for the reply, Sam.

        I’m in a high tax bracket currently, so I’m glad I didn’t convert any of the tax-deferred accounts. Thanks for always taking care of us readers.

        Do you think it makes sense to get long-term care insurance as stated in the book? I’m 50, single, and without siblings or kids of my own.

        Thanks again!

      2. Agreed. My estimates are 90% of the population would be better off with 401k / traditional IRA than with Roths. People mistakenly ignore the value of the tax savings with 401k/IRA for most. Between state and fed, it’s usually 25-30% marginal tax rate while working and 40% for higher income, so you can contribute $7k in a tax deferred for the same out of pocket as $5k to a Roth. Meanwhile, in retirement, most people pay around 10% tax rate on that income, or less, if lower income. Roth’s work great for people in the 18-24 range who have supplemental income/support from family.

          1. I guess we can never be entirely 100% sure what the government would do.

            A Roth IRA is fine for younger folks and lower tax bracket folks. It’s good retirement income diversification planning.

            But after you get into the 2nd half of the marginal income tax bracket, it’s a bad trade. But for my kids, I’m contributing to their custodial Roth IRA every year until they get a full time job at least.

            Related: Why I Never Contributed To A Roth IRA, But Why You Probably Should

  18. That’s interesting on the possible underreporting of 401ks due to people having multiple accounts. I can totally see how that could be the case.

    I was lucky that two of my employers had 401k plans with company matching. I didn’t get access to profit sharing, but the company matching really added up nonetheless.

    1. I have a few 401k accounts, since I left the ones from my past few jobs without rolling over. At one point, I had an account at Vanguard and others at Fidelity.

      I don’t know why the study doesn’t first sum up the tax-advantaged accounts a person may have. I think that there is an incorrect assumption that everyone rolls over and everyone uses one brokerage company.

  19. I love reading your work. I’m 40 years old. Have a net worth of about 3.8 million and passive income of around 40k per year, all from our 6 rental properties. I really want to pull the trigger but have 3 kids at home and there is no way I can live on my passive income. With three kids and a mother in law, we spend 24k per year just on food!

    I have read most of your posts and implemented a lot of your recommendations. My wife got us all set up in personal Capital and that really motivated us. Thank you for your service!

  20. Great article, Sam. In addition to maxing out my 401k and my additional after-tax contribution, my employer gives us a nice match which gets me close to the 401k limits for me and my employer. I’m shooting to be a 401k millionaire in a couple of years by 40 and this is not maxing out until I turned 30. I definitely want to retire early (45-50) but am lopsided in my net worth with 10% being in non-retirement money and 90% in Retirement money (mostly my 401k and my wife’s 403b). It makes me hesitant to start pulling from these using 72t because what if I do want to go back to work, or something else that would keep me from pulling retirement funds early. How risky is pulling from 401k/IRA deferred money? Am I crazy for thinking it’s bad?

    Also, curious about having growth oriented equities in your tax deferred account vs non-retirement account while bonds/dividend oriented assets. I assume it’s because you’re not exercising the 72t rule and choosing to withdraw (and can cover current expenses with) non-retirement assets.

    Thanks for writing and sharing your story.

    1. I wouldn’t touch your 401(k) until after 59 1/2.

      If you do plan to retire before 50, then you best get to work building up that after tax investment portfolio and real estate portfolio. It really is the most important way to be able to comfortably retire early.

      It’s important to get into the mindset of thinking all your tax advantageous retirement accounts are just bonuses waiting for you after you hit your 60s.

      1. Agreed – better to not have to resort to 72t if possible. But if you find yourself unemployed not by choice and decide to retire, its a nice option to have if needed if you do have lopsided investments. I just started building up my non-retirement investments the last 5 years or so and finally at the point where I’m about 50% net worth retirement accounts, 50% non-retirement, and adding about 5-6:1 non-retirement vs retirement accounts each year at this point. By the time I retire in ~6-8 years, I will be 75%-80% non-retirement accounts and 20-25% retirement accounts. I have about $100k in a roth currently that I converted in a low tax year for me a while back.

  21. I’m not quite there yet on the 401k side anyway. I did benefit hugely though with first post college employer, as they provided both a 401k and a ESOP match. So as I recall they would match your 401k up to 5% of contribution, and then they would match it again in the ESOP. I ended up leaving the company at the exact right time as they were in a large up trend. The deal with the ESOP was that first it had to vest over a period of time which I believe was 6 years. Then once it was 100% vested you were good to go. When leaving the company they also retained the ESOP for 5 years so you couldn’t cash out. So, when I left the company, the ESOP value keep growing for the next 5 years. When my 5 year mark hit, the company moved the ESOP balance to my 401k. The amazing thing was (for me anyway) was that not more than a month after the transfer the company started to do really poorly. I think the ESOP dropped easily 60% in value over the next year. Lucky for me my money was already moved over to my 401K, and after that I rolled it over to an IRA.

    The ESOP transferred over roughly doubled up my early contributions. Unfortunately, I hadn’t been maxing my 401k in total in the early years. I did the min to get the company match and then maybe another 2-4% on top. My wife and I have each been maxing out now for the last 5 years though, and like everyone else I see it as a no brainer going forward.

    Lucky for us we will each surpass the 401k millionaire mark in the next few years. I know she wants to leave the rat race though, so perhaps I’ll have to convince her to pass the $1M before she throws in the towel. I think I’m in it for the long run myself. Perhaps, I’ll eventually leave work, but I see myself always taking on side projects and staying active in the industry for years to come.

  22. Ahhh, I see. They don’t count the rollover IRA. My solo 401k is worth about $350,000 so I’m a long way from being a 401k millionaire.
    If I stayed at my old job, I probably still wouldn’t be a 401k millionaire. My investment strategy is a bit too conservative. Slow and steady.

    1. $350K for the Solo 401k is great! We left work right about the same time. So you’ve been much more diligent than me. But I also have a SEP IRA.

      How much is your rollover IRA?

  23. I’m 40 years old, now managing an IT team with a large company. I’m getting to the point where just about every day I want to tell people to go F themselves and quit. I hate the politics and dont feel like dealing with that crap anymore. I have about 1.2 million in my 401k and 3.5 million worth of real estate that is all leveraged. My net worth is around 3.8 million but I only bring in about 40k in passive income. I also have 3 kids at home. Not sure if I can pull the trigger. Yesterday I almost lost it on some lying, scheming exec and hastened my release!
    Sam, I have been loving reading about your journey and was really fooled by your Hawaii mansion joke. I could not believe you would do something like that! I live a pretty modest life, own a nice home in a lower cost area of greater Seattle. I just want to understand how I can pull the trigger.

    1. You could sell the RE out in the Seattle area and 1031 into higher cap rates in other parts of the country like the midwest and southeast. Net $2-$2.5m in rentals here in the carolinas would yield about 15-20% levered at 4% rental mortgage with 5-8% annual cash yields assuming just 2% appreciation. Some of the ones I bought 2-3 years ago with credit union mortgage I’m getting 20-25% cash on cash returns even with 0 appreciation in the carolinas with 25% down (and they have appreciated quite a bit).

  24. Sam,

    Great and informative info, thanks. You may not be a 401K millionaire but I’m sure you are a millionaire many times over with your blog, paid for real estate, etc.. . I started late on my IRA, but have 5 SFH’s.

    I never made over $100k a year. 52, Retired 5 years ago from the military after close 28 years. Great retirement w/just over 80K a year. Attained millionaire status before being married or retiring from the military.

    The past year w/Covid my real estate has appreciated just under $300K. Thinking of selling all real estate and going on a shopping spree for multi family in Texas and 1031 exchange into more real estate vs paying cash or carrying some debt for
    tax purposes. I know you have some paid off real estate. Thank you

  25. I only had a 401 (k) for my first 2 years of employment and then my last 5 after we sold our company. In those 5 years I maxed out and received company match of up to 4% of my salary. I was able to grow it from $0 to $200k when I left. I think with continued effort for another 5 years, combined with compounding I could have been looking at a $500k account in 10 years.

    Max out your 401 (k)! It’s the surest bet to grow wealth and with huge tax benefits!

  26. I know a lot of FIRE folks are wanting to get out of the corporate grind as soon as they are financially independent but this is making me really not want to quit. I don’t know if I can easily walk away from a million dollars just like that without feeling some sort of regret. I hit the $200k 401k milestone (starting from 0) after just 4.5 years of contributing to it and I have no plans to not max out my 401k contributions any time soon.

    I feel like I can reach the $500k mark in just another 4.5 years. Maybe I don’t hate my job that much after all…..?

    1. How old are you? Over time, people tend to get sick and tired of doing the same thing. I did after 13 years. I’m finding the cycle repeating online, which is why I want to take things down a notch.

      It’s the One More Year Syndrome. It’s hard to break! Only you can determine how much is enough.

      1. David @ Filled With Money

        I’m sure I’ll get sick and tired of it if I do it after 13 years too, but I’m confident I’ll become a 401k millionaire after 13 years of working.

        One more year of working (and saying “one more year” every year after) doesn’t sound that bad especially when it’s millions of dollars that I’m leaving on the table over the long term. I think I’m thinking that work is so bad even when overall life is great.

        I’m only 26.

  27. You are right again Sam, and it matches my experience. I did not have nearly as sweet a plan as you, I did get a match but it was nowhere near $25,000. That’s an awesome benefit! But even at that and even though I did not have access to a tax deferred plan the first ten years of my career I still was a 401K millionaire by the time I reached 55 simply by maxing out my own contributions. I also wasn’t allowed to contribute the legal max many years because we had a top heavy plan. But I still made it. I also maxed a Roth or conventional post tax IRA and invested in taxable brokerage accounts every year. The 401K millionaire status is not that hard if you can keep a big enough gap in your income vs expenses and contribute the max amount. Considering I’m older than dirt and my starting pay of $18K was good money back then, with todays higher median wages it is very possible for a lot of people.

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