How to use Super Rich 401 (k) s

A 401 (k) plan can be an important part of a retirement savings strategy. The contributions can reduce the taxable income for the year and increase it with a tax deferral. Employees, meanwhile, can raise free money in the form of contributions that match the employer. As of June 2021, the 401 (k) programs owned approximately $ 7.3 trillion in assets, more than double the amount they held a decade ago. Higher income earners may have an advantage when it comes to maximizing 401 (k) program contributions. The secrets of the super-rich can be a guide for everyday savers 401 (k) who want to make the most of their plans.

Basically Takeaways

  • A 401 (k) plan is a tax-exempt retirement savings plan offered by employers to employees and funded through optional pay deferrals.
  • It is estimated that 60 million Americans have at least one 401 (k) program that they actively use to save for retirement.
  • Wealthy savers can have the advantage of maximizing 401 (k) schemes if they are able to fully fund their contributions each year.
  • High-wage workers (HCEs) have specific limitations on how much they can contribute to the 401 (k) program.

The Rich Savers have a 401 (k) advantage.

Making more money can give one a definite advantage when saving at a 401 (k) for one simple reason: it can be financially rewarding to make bigger contributions each year. For 2022, the maximum contribution of 401 (k) is $ 20,500. An additional contribution of $ 6,500 is allowed for savers aged 50 and over.

Suppose you can fully fund your 401 (k) each year, up to a limit of $ 20,500. Contribute this amount annually from the age of 30 to the age of 65, earning an annual rate of return of 7%. If you retire at 65, you will have saved a little over $ 3.5 million for retirement, not including any additional contributions you make between the ages of 50 and 65.

At a lower income level, you can still see significant gains from fixed contributions. Suppose you earn $ 50,000 a year and save 10% a year on 401 (k). Over the same time period, earning the same rate of return would have accumulated just over $ 928,000 in retirement savings. This example illustrates the long-term benefits of being able to contribute larger amounts to your work schedule.

For further reference, the average balance of the 401 (k) program was $ 141,542 in 2021, according to the latest Vanguard How America Saves report. The median balance was $ 35,345. While both figures represent year-over-year increases, they highlight the fact that standard savings of 401 (k) are probably not among the super-rich.


Excessive contribution to a 401 (k) program can result in a 10% tax penalty.

401 (k) Rules for High Remuneration Employees (HCEs)

The IRS sets annual contribution limits for 401 (k) programs, but there are additional rules for high-paying employees (HCE). A high-paid employee is defined as a person who:

  • He held more than 5% of the shares in the business at any time during the year or the previous year, regardless of how much compensation this person earned or received, or
  • For the previous year, he received compensation from the company over $ 125,000 (if the previous year is 2019, $ 130,000 if the previous year is 2020 or 2021 and $ 135,000 if the previous year is 2022) and, if the employer choose it, the top 20% of employees when ranked on the basis of salary.

The distinction between high-paying employees and other employees is important because 401 (k) programs are subject to non-discriminatory testing. These tests are designed by the IRS to make sure an employer does not favor higher wages over other employees.

In order for a project to pass the tests without discrimination, the average contributions from HCE can not exceed 2% of the contributions paid by employees who do not receive high pay. For example, if all the employees of a high-paid company collectively contribute 6% of their average salary, then a high-paid employee can not contribute more than 8% of his salary.

The IRS also sets a separate ceiling on total contributions paid by high-paid employees. According to this rule, the total contributions for all HEIs can not exceed the combined contributions of all employees who do not receive a high pay by 2%. These rules essentially dictate how much a higher salary each year can contribute to his plan.


If a plan 401 (k) fails the non-discrimination tests, it must be corrected by making special non-selective contributions from employees who do not receive high pay.

How to use your 401 (k) like Super Rich

If you are interested in creating wealth and joining the ranks of the rich for retirement, it is important to have a plan. There are simple – but effective – strategies you can use to get the most out of your 401 (k) during your years of work and beyond.

  • Check your contribution rate. The simplest way to boost your 401 (k) is to increase your annual contribution rate. The closer you can get to maximizing your annual contribution, the more room you have for your money to grow. If you can not make large increases in your contribution rate at this time, consider doing it with smaller increases of 1% to 2% each year.
  • Play catch-up. Ideally, by the time you turn 50, you are at the peak of your profits and have the financial ability to contribute fully to your 401 (k) per year. You can intensify your savings efforts by also making coverage contributions up to the annual limit.
  • Check the return on investment. Investing part of your salary in your 401 (k) is just one component of a wealth creation strategy. You also need to create a diversified investment portfolio that can offer the right combination of risk and reward to achieve your goals. If you have not recently checked the return on your investment, you may want to see which stocks are doing well — and which ones you may want to get rid of.
  • Keep charges under control. There are many charges associated with 401 (k) programs. some you can control, others you can not. One thing you are talking about is what you pay to own mutual funds and negotiable mutual funds (ETFs). Choosing funds with lower cost ratios can reduce commissions and allow you to maintain more of your returns.


If you want to intensify your wealth building efforts even more, consider replenishing your 401 (k) savings with a traditional or Roth IRA.

Can you get rich with a 401 (k)?

A 401 (k) can be an important building block in your financial plan if you are hoping to get rich. The more you can afford to contribute to your plan each year and the earlier you start saving, the bigger your balance can be as soon as you are ready to retire.

Can I make a million dollars with my 401 (k)?

It is possible to increase a balance of 401 (k) to $ 1 million or more, although it requires careful planning. To save a million dollars with a 401 (k), you generally need to save early and often, maximize the program contribution limit as much as possible each year, minimize the fees you pay, and make smart investment choices.

Do millionaires use 401 (k) s?

Many millionaires and super rich people use 401 (k) plans to build wealth. But they do not necessarily put all their eggs in one basket. They can also supplement their 401 (k) savings with IRA, taxable brokerage accounts, income, real estate and other investments.


If you have a 401 (k) plan at work, taking advantage of it can help you get closer to your retirement goals, including becoming extremely wealthy. By saving on time and regularly, you can take advantage of the power of compound interest over time. Also, remember that it is the consistency that matters most. Staying on track with your 401 (k) —even when the market is volatile — can pay off in the long run.

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