A 401(k) plan can be an important part of a retirement savings strategy. Contributions can reduce 澳洲幸运5官方开奖结果体彩网:taxable income for the year and grow 澳洲幸运5官方开奖结果体彩网:tax-deferred. Meanwhile, employees can collect free money in the form of employer 澳洲幸运5官方开奖结果体彩网:matching contributions. As of 2024, 401(k) plans held $7.8 trillion in assets, more than three times the amount they held a decade before.

Though higher-inꦑcome earners may have an advantage when it comes to maxing out 401(k) plan contributions, the secrets of the superrich can be a guide for everyday 401(k) savers who want to make the most of their plans.

Rich Savers Have a 401(k) Advantage

Earning more money can give someone a definite edge when saving in a 401(k) for one simple reason: They may be able to afford to make larger contributions each year. For 2024, the maximum 401(k) contribution is $23,000. Also for 2024, an additional catch-up contribution of $7,500 is allowed for savers ages 50 and older.

Let's say that you're able to fully fund your 401(k) each year, up to the $23,000 limit established for 2024. You contribute that amount annually from age 30 to age 65, earning a 7% annual rate of return. If you retire at 65, you'd have over $3 million saved for retirement, not including any additional catch-up contributions you make between age 50 and 65.

At a lower income level, you can still see substantial gains from consistent contributions. Let's say you make $50,000 a year and save 10% annually in your 401(k). Over that same time period, earning that same rate of return, you'd accumulate almost $740,000 in retirement savings. That example illustrates the long-term benefits of being able to contribute larger amounts to your workplace plan.

For further perspective, consider that the average 401(k) plan balance was $134,128 in 2024, according to the latest Vanguard How America Saves report. The median balance was $35,286. These figures highlight the fact thaꦡt the typical 401(k) saver is likely not among the superrich.

401(k) Ruওles for Highly Compensated Employees ℱ(HCEs)

The IRS sets annual contribution limits for 401(k) plans, but there are additional rules for highly compensated employees (HCEs). A highly compensated emౠployee is defined as an individual who:

• Owned more than a 5% interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or:
• For the preceding year, received compensation from the business of more than $125,000 if the preceding year is 2019, $130,000 if the preceding year is 2020 or 2021, $135,000 if the preceding year is 2022, and $150,000 if the preceding years is 2023 and, if the employer so chooses, was in the top 20% of employees when ranked by compensation.

The distinction between highly compensated employees and other employees is important because 401(k) plans are subject to 澳洲幸运5官方开奖结果体彩网:nondiscrimination tests. These tests are designed by the IRS to make sure tಌhat an employer isn't favoring higher-income earner𒊎s over other workers.

In order for a plan to pass nondiscrimination tests, the average contributions by HCEs cannot exceed 2% of the contributions made by non-highly compensated employees. For example, if all the non-highly compensated employees of a company collectively contribute 6% of their salaries on average, then a highly compensated employee can't contribute more than 8% of their earnings.

The 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) also puts a cap on total contributions made by highly compensated employees. Under this rule, the total contributions for all HCEs can't exceed the combined contributions of all non-highly compensated employees by 2%. These rules essentially dictate just how much a higher earner can contribute to their plan each year.

How to Use Your 401(k) Like the Superrich Do

If you're interested in 澳洲幸运5官方开奖结果体彩网:building wealth and joining the ranks of the rich for retirement, it's important to have a plan. Here are a few simple but effective s🔜trateg💮ies you can apply to make the most of your 401(k)'s potential during your working years and beyond.

• Review your contribution rate. The simplest way to give your 401(k) a boost is to raise your annual contribution rate. The closer you can get to maxing out your 401(k)—that is, meeting the annual contribution limit—the more room your money has to grow. If you're unable to make large increases in your contribution rate at this time, consider doing so in smaller increments of 1% to 2% each year. Every little bit counts.
• Play catch-up. Ideally, by the time you turn 50, you're in your peak earning years and can afford to make the full contribution to your 401(k) annually. You can step up your savings efforts even more by also making 澳洲幸运5官方开奖结果体彩网:catch-up contributions up to the annual limit.
• Review investment performance. Investing part of your salary into your 401(k) is just one component of a wealth-building strategy. You also need to create a 澳洲幸运5官方开奖结෴果体彩网:portfolio of diversified inveꦦstments that can offer the right combination of risk and reward to meet your goals. If you haven't checked your investment performance lately, you may want to see which holdings are doing well—and which ones you may want to unload.
• Keep fees in check. There are plenty of fees associated with 401(k) plans. Some you can control. Others you can't. One thing you do have a say in is what you pay to own 澳洲幸运5官方开奖结果体彩网:mutual funds and 澳洲幸运5官方开奖结果体彩网:exchange-traded funds (ETFs). Opting for funds with lower 澳洲幸运5官方开奖结果体彩网:expense ratios can reduce fees and allow you to keep more of your returns.

The Bottom Line

If you have a 401(k) plan at work, taking advantage of it can help you get closer to your retirement goals, including becoming superrich. By saving early and regularly, you can capitalize on the power of 澳洲幸运5官方开奖结果体彩网:compounding interest over time. Also, remember that it's consis💛tency that counts the most. Staying the course with your 401(k)—even when the market is volatile—can pay off in the long run.