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How to Use a 401(k) and Roth IRA to Retire a Millionaire

Most people dream of becoming a millionaire. Few actually plan for it—and that’s why they never get there. But here’s the truth: You don’t need a six-figure salary or a lucky break to hit $1,000,000 or more in retirement.

All it takes is time, consistency, and two powerful accounts: a 401(k) and a Roth IRA.

Why These Accounts Matter

Both the 401(k) and Roth IRA offer tax advantages that allow your money to grow faster. The less you lose to taxes, the more wealth you build. Let’s break down how to use each one effectively.

Step 1: Maximize Your 401(k) (Even if You’re Starting Small)

A 401(k) is an employer-sponsored retirement account where you contribute pre-tax money, meaning you lower your taxable income while investing for the future.

How to Get the Most Out of It

• Contribute enough to get your employer match. Many companies offer a match of 50 to 100 percent of your contributions up to a certain percentage. This is free money. If you make $50,000 per year and your employer matches the first 5 percent, that’s an extra $2,500 per year added to your retirement fund.

• Increase your contributions over time. If you start at 5 percent of your salary, aim to increase it by 1 percent per year until you’re contributing the maximum. The 2024 contribution limit is $23,000 ($30,500 if you’re 50 or older).

• Choose the right investments. If you are under 40, prioritize stock-based funds like S&P 500 index funds and target-date funds that adjust risk as you age. Keeping too much in bonds or cash early on will limit your long-term growth.

If you invest just $500 per month in your 401(k) and earn a 10 percent return, you will have more than $1.1 million in 35 years.

Step 2: Supercharge Growth with a Roth IRA

A Roth IRA is an individual retirement account where you invest after-tax money, but the real advantage comes later:

• Your money grows tax-free.

• You will not owe taxes on withdrawals in retirement.

• You have more control over investments than in a 401(k).

How to Use a Roth IRA for Maximum Growth

• Contribute the maximum amount each year. The 2024 Roth IRA contribution limit is $7,000 ($8,000 if you are 50 or older).

• Invest in growth assets. Since Roth IRA withdrawals are tax-free, it makes sense to invest in higher-growth assets like individual stocks, ETFs, or index funds.

• Use the Backdoor Roth IRA if you make too much. If you earn over $161,000 (single) or $240,000 (married), you cannot contribute directly. However, you can contribute to a traditional IRA and convert it into a Roth IRA—a strategy called the Backdoor Roth IRA.

If you invest just $500 per month in a Roth IRA and earn a 10 percent return, you will have more than $1.1 million in 35 years—completely tax-free.

Step 3: Combine Both to Reach $1 Million Faster

The best approach is to use both accounts together.

• Step 1: Contribute enough to your 401(k) to get the full employer match.

• Step 2: Max out your Roth IRA.

• Step 3: If you can invest more, go back and increase your 401(k) contributions.

How Long Does It Take to Reach $1 Million?

Most people do not realize that investing just $500 to $1,000 per month can change their entire financial future.

Investment Term of the Day: Tax-Advantaged Accounts

A tax-advantaged account is any investment account that offers tax benefits to help your money grow faster.

• 401(k): Contributions are pre-tax (lowers your taxable income now), but you pay taxes on withdrawals in retirement.

• Roth IRA: Contributions are after-tax, but withdrawals are completely tax-free in retirement.

• HSA (Health Savings Account): This account is triple tax-advantaged—money goes in pre-tax, grows tax-free, and can be withdrawn tax-free for medical expenses.

Choosing the right mix of tax-advantaged accounts can make the difference between a comfortable retirement and paying unnecessary taxes.

The Bottom Line

You do not need to be wealthy to retire as a millionaire. You just need a smart plan, consistency, and time.

• Start with your 401(k). Get the free money from your employer.

• Max out your Roth IRA. Take advantage of tax-free growth.

• Stay invested. The market will go up and down, but time in the market is more important than timing the market.

Most people waste decades believing they will “start investing later.” Later never comes. The best time to start is today.

Hammer & Hustle Team