7 Money Moves To Make When Your 401(K) Hits $1 Million

meeting with money manager

You’ve saved diligently and your retirement fund recently hit $1 million. That’s a huge milestone, but, now what do you do?

The answer is to keep saving, of course, but this is the time to make more strategic money moves. You not only want to maintain your retirement, but you can still grow it, too, maybe just with a little less risk involved.

But once you hit that milestone, that’s when money experts say it’s time to make some smart financial moves. Here’s some of the best advice we found from investment firms and financial advisors.

1. Budget Accordingly

Just like you’ve had to budget during your working life, you’ll have to budget in your retirement. After all, it has to last you the rest of your life. And here’s the thing: your lifestyle will change and it’s a good idea to plan for this eventuality.

Once you have a general roadmap of what your retirement should look like — it may change — you can determine whether your 401(k) balance is enough, or if you need to save more, and thus, be more aggressive if retirement is right around the corner.

2. Plan ahead for Taxes

One of the biggest hits you’d take if you were to withdraw your entire balance at once (hint: don’t do it) is taxes. Uncle Sam will be waiting in line to take his due. That would put you in the upper tax brackets, which means a whopping 37% tax hit.

That’s a $370,000 loss immediately if you withdraw $1 million, which is not an insignificant sum for most people. Add in state taxes, and you might just lose half. This is why it’s so important to plan for those expenses.

3. Mitigate Risks

If your balance is enough to get you through, per your budget, then you can start being more fiscally conservative with your investments. Instead of being aggressive to get the maximum returns, now’s the time to protect your retirement.

That means restructuring the majority of your investments to less risky modes, such as CDs, instead of speculative ones like cryptocurrency, which is known to fluctuate drastically.

4. Speak With Your Financial Advisor

Here’s the thing, when your lifestyle significantly changes, such as now having access to a huge sum of money, you need an expert’s help. One can help you navigate the planning stage and how to best put your money to use so you’re not at risk of going broke in the middle of your golden years.

A financial expert can guide you on how to withdraw the money to avoid massive tax payments and to re-invest so your retirement keeps growing, even after you call it quits.

5. Reevaluate Your Retirement Timeline

Here’s the thing. You can retire at any age as long as you have enough money in the bank. But it’s wise to wait until you’re 59½ because you won’t get any penalties. If you withdraw before that point, it’s 10% off the top of the amount you withdraw. That’s in addition to taxes, so you stand to lose a bit.

If you planned to retire at 65, but now that you have $1 million you can do so at 59½, there’s nobody stopping you from doing so. It will be another few years before you can start collecting Social Security, though.

6. Pay off Debts

The best way to set yourself up for retirement, so you can enjoy that $1 million-plus in your fund, is to pay off your debts now. Get rid of high-interest payments before you officially retire. That means paying off loans, credit cards, and student loans. You want to start retirement with a clean slate.

Do not withdraw your 401(k) to pay off debts. This would be a detrimental move because even though you can borrow from your investment, that loan takes away from the added interest you could be gaining.

7. Steady On

This might seem like a silly thing to mention, but don’t stop contributing to your retirement just because you hit a significant milestone. Your fund will continue to grow while you work, which means you could have even more available to enjoy life on.

Do diversify and keep that employer match, if you have one, coming. You’ll be thankful you did in a few years.

Tips To Hit $1 Million

Image credit: Shutterstock.Are you wondering just what it takes for people to hit $1 million in their accounts? It doesn’t come easy — and it definitely doesn’t happen overnight. As of March 2024, nearly 500,000 with Fidelity had this sum in their 401(k), but they worked hard to get there.

To get to that coveted seven-figure status that will likely set them up for retirement, there’s a bit of strategy involved. You can absolutely hit that milestone but you have to be diligent.

Start Contributing Early

This is critical. The sooner you start, the more time you’ll have to invest and grow that nest egg. In fact, you should be contributing to your 401(k) in your twenties, or when you join the workforce full-time.

It can be tempting to put the money toward different things, such as your debts or that latest new gadget. I get it. But being fiscally smart from day one will improve your chances of hitting seven-figure status later in life.

Increase Your Contribution Limits When Possible

This can’t be stated enough. Most people, likely due to their cost of living and spending habits, do not contribute enough to reach $1 million. According to an analysis of Fidelity investors who have $1 million, they contribute at least 17%. The max you can contribute in 2024 is $23,000 for workers under 50. If you’re over 50, you can contribute up to $7,500 extra to catch up.

Obviously, not everyone can afford to do this. But, that shouldn’t stop you from figuring out the max you can contribute and adjusting it annually or as life circumstances change.

Don’t Cash It Out

Many people use their retirement accounts as a fallback. If they hit a financial crunch, they withdraw the money, taking not only a penalty, but a fraction of the sum they’d get if they just waited.

There are many ways you can make extra cash if you find yourself in a bind, rather than touching your 401(k). Get creative and leave the retirement funds for actual retirement.

Max out Employer MatchingIf you have an employer willing to match your contributions to a certain point, try to hit that maximum limit. It’s literally free money that you can enjoy later in life and your employer is giving you a helping hand.

Each employer establishes their own match point. Be sure to discuss it with yours so you can maximize your savings.

And Most of All … Be PatientThis is so much easier said than done. It can be tempting to freak out when the market drops dramatically, but it always recovers. Don’t cut off your nose to spite your face.

Becoming a millionaire, even if it’s just in retirement, doesn’t happen overnight. You need to make smart decisions and leave the account alone, except for occasional adjustments to your portfolio.

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