Who Wants to Be A 401(K) (or IRA) Millionaire?

Published over 2 years ago • 3 min read

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How long will it take to become a millionaire with the new IRA and 401(K) Rules.

-The book of the week.

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Last week, we briefly mentioned the new IRS increases to the Roth IRA and 401(K).

You know ya boi can’t just leave that be. So today, I want to dive into the opportunity you have available by maxing out these bad boys.

You can think of this as our version of Who Wants to Be A Millionaire (the slow and steady way).

First let’s recap the new increases:

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The IRS has changed the 401(K) and IRA contributions. This is the Largest-Ever Increase to 401(k) Contribution Limit: 
401(k) Under Age 50: $22,500 (+2,000)
401(k) Over Age 50:  $30,000 (+2,000)
IRA Under Age 50: $6,500 (+$500)
IRA Over Age 50: $7,500 (+500)

October 26th 2022

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When you can invest more money, your wealth can compound faster. Simple right? So, let's see how long it would now take to get to a million dollars with an 8% return and a 10% return.

Recap: What is the IRA and 401(K)?

Remember the Roth IRA and Roth 401(K) is where you put money that has already been taxed in (your paycheck) and your money grows tax free, and you can pull the money out tax free.

The traditional IRA and traditional 401(K) is the opposite. You get a tax deduction or you contribute tax differed money to the IRA, then it grows, and you pay taxes when you pull money out.

IRA & Roth IRA

Now let's get to the good stuff. How long will take to get to stack a milli'? You can put $6,500 in the Roth IRA. If you are over 50 you can stuff an extra $1K in for a $7,500 max.

-At an 8% rate of return, it would take 33.5 years to become a millionaire.

-At a 10% rate of return, it would take 29 years to become a millionaire.

Now remember, the majority of this is growth. The growth in a Roth is completely tax free. In the 10% example, you would have $820,108.18 in tax free money! I love not having to pay Uncle Sam in the future, especially since we have no idea what future tax rates will be. That is why I prefer the Roth over the traditional IRA, personally.

Now, lets look at the 401(K), which will happen much faster since you can get more money into the IRA.

401(K) and Roth 401(K)

With a 401(k), you can now get $22,500 into the account. If you are over 50, you can get an extra $7,500 for a max out of $30,000 per year!

I like the tax benefits less, but investing a large amount can be powerful, watch:

-At an 8% rate of return, it would take 19.5 years to become a millionaire.

-At a 10% rate of return, it would take 17.5 years to become a millionaire.

Now, let's see if you kept this up for a 30 year career:

-At an 8% rate of return, after 30 years you would have $2,641,031.

-At a 10% rate of return, after 30 years you would have $3,867,831.

Pretty wild stuff. You can build a tremendous amount of wealth by just passively investing and working your day job.

My Favorite Credit Cards

We get asked about the best credit cards all the time. Specifically, when it comes to cash back and travel rewards. The Travel Hacking episode is coming out very soon. So if you want to see some of my faves early, here is our list!

All of my favorite credit cards: https://milevalue.com/top-offers-mastermoney/

1. Capital One Venture Rewards Credit Card

2. Chase Sapphire Preferred® Card

3. Citi Premier® Card

4. American Express® Gold Card

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Essentialism: The Disciplined Pursuit of Less

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