Your 401(k) has the potential to make you a millionaire. Here's a simple, 10-step 401(k) strategy for 20- to 30-year olds to help you get the most from your retirement savings.

Your 401(k) could easily make you a millionaire. By making small, regular investments starting in your 20s or early 30s, your savings will grow tax-free over 30 or 40 years.

While opting in to make 401(k) contributions is the most important step you can take, having a sound 401(k) strategy will maximize your returns and help you reach the $1 million mark faster.

Sometimes, putting your money on autopilot is best. If you have direct deposit, you’ll never worry about running a paycheck to the bank. If you have automatic bill pay, you’ll never miss a credit card or utility bill due date.

But when it comes to your 401(k), autopilot is definitely not the way to go—even if your employer takes deductions from your pay that you hardly notice. That’s because 401(k) plans depend on their asset allocations to grow, and just a few hours of education and application can increase your lifetime earnings by hundreds of thousands of dollars.

Here we outline a 10-step 401(k) strategy for a 30-year old (although the principles are the same whether you’re 22, 30, or 35).

Always maximize your employer match

In theory, no one would turn down free money. But that’s exactly what many Americans do when they drop the ball on matching retirement funds when an employer offers them.

Many employers will match 50% (or sometimes 100%) of money that you, the employee, puts into your 401(k), up to a specified maximum percentage of your salary.

Ignoring this benefit by either not opting into your 401(k) or failing to contribute the maximum your employer will match is literally leaving a portion of your salary on the table.

Supplement your 401(k) with a Roth IRA

Some employer 401(k)s suffer from a lack of investment options. This is where an individual retirement account (IRA) comes in handy.

And if your employer doesn’t match contributions, you might choose to forgo your 401(k) altogether, says Ned Gandevani, program coordinator and professor in the master’s of science in finance program at the New England College of Business. “When there’s no contribution from your employer towards your plan, there’s no need to invest in it. By investing in a restricted plan, you end up paying too much with no benefits from your employer.”

Stock your 401(k) with stocks…

Stocks may be the most volatile investment you can make, but they’re also your best bet if you want average annual returns of 8% (or more).

The key is to make sure your 401(k) is loaded with them.

When you sign up for your 401(k), you’ll be given a worksheet or directed to go online to choose how to invest your money.

Unfortunately, many investors choose blindly.

That’s bad, because most 401(k) plans offer investments designed for very different purposes. Some will be aggressive stock funds geared toward maximizing long-term gains, but others will be conservative funds holding mostly bonds and cash. These funds are designed to minimize losses and, as a result, will generate a much smaller annual gain. That’s good if you’re close to retirement, but not so good if you have 30 years to invest.

When choosing investments in your 401(k), Amy Merrill, a principal with TrueWealth Management in Atlanta, suggests holding onto US stock funds, international stock funds, and real estate stock funds. “Look at your fund choices and try to find a fund that is more like a stock index for the category.”

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…but also know when to diversify

Young investors in their 20s and 30s want to invest mostly in stocks. But that doesn’t mean you should ignore other asset classes like bonds and alternatives. An 80/20 ratio of stocks to bonds is a good benchmark for investors 30 years old and younger.

For more hands-on investors, another thing to consider is the valuation of asset classes at the time you’re investing. Although you shouldn’t try to time the market, you might reasonably look at the recent run of the S&P 500 and be skeptical of its upcoming near-term performance.

Because you’re investing for 30 or more years, this certainly isn’t a reason not to invest in stocks, but it might make you consider allocating some of your funds to struggling assets that will come back with time, such as those in Europe (where the Euro is struggling).

Do NOT get carried away with your company’s stock

While it’s smart to take advantage of discounted employee stock purchase plans, you shouldn’t dedicate more than 10% to your retirement portfolio.

In fact, your portfolio should not be heavily concentrated in any one particular stock. But if you lean too heavily on employer stock, you could suffer a significant investment loss if your company goes bust.

Regularly increase your contributions

Many investors contribute just enough to their 401(k)s to get the company match. Unfortunately, that’s usually not enough to secure your retirement. Experts suggest using 10 to 15% as a benchmark. But if you can’t start there, it’s a good practice to give your 401(k) a raise whenever you receive a pay hike from your employer.

Lobby for a better 401(k)

Sometimes, your 401(k) is weak because your employer has failed to do enough with the overall plan.

“I’ll let you in on a trade secret: plan sponsors are scared of participants,” says Brandon Grandbouche, a senior retirement consultant with WealthHarbor Capital Group in New Orleans. “Employers are often embroiled in running the day-to-day affairs of the business and can have difficulty keeping up to date with all of the fiduciary duties of running a plan.”

If you’re disappointed by the investment options or fees in your 401(k), talk to your plan sponsor or HR department about potential remedies.

Balance retirement savings and paying down debt

Most likely, saving for retirement is not your only financial goal. Far from it.

You’ll likely need to balance your 401(k) contributions with paying down debt or saving for other goals like a house or a family.

That’s fine. Just don’t use competing goals as an excuse to forgo making 401(k) contributions. You’ll miss out on the prime years to make your 401(k) a million-dollar nest egg. Even if you have debt, contribute enough to your 401(k) to get your employer match. Then, as you clear money out of the debt pile, reallocate the funds to the retirement pile through payroll deductions.

Never underestimate compound interest

Starting a retirement account with steady contributions at age 20 versus 30 makes all the difference in the world.

“Albert Einstein once called compound interest ‘the most powerful force in the universe’ and he was a pretty smart guy,” says John McFarland, coordinator of the financial planning track at the Virginia Commonwealth University School of Business. (Editor’s note: There’s no evidence Einstein actually said this, but it’s become personal finance lore.)

Let’s say a 20-year-old begins plunking down just $45 a month with a 50% company match. If she raises contributions by the same amount as any pay raises she gets, she’ll have more than $1 million by age 65. That assumes annual raises of 3.5% and an 8.5% return on 401(k) investments.

Take advantage of professional advice

In a 2014 Schwab Retirement Plan Services survey, 70% of participants said they’d be very or extremely confident in making 401(k) investment decisions with professional help. That compares to only 39% who felt that same confidence in making decisions on their own.

But it’s not just a matter of feeling safe—it’s being safe as well. “We’ve also found that nine out of 10 advice takers stayed the course during the 2008 financial crisis,” says Catherine Golladay, Schwab’s Vice President of 401(k) Participant Services. “As a result they were well positioned to take advantage of the market recovery.”

You can find advice in different places. You can start by attending seminars put on by your 401(k) plan administrator or using a free app like Personal Capital to screen your portfolio and get suggestions.

As your savings grow, you might consider hiring your own financial advisor who can help you plan your financial future as well as making investment recommendations. Or, again, consider the affordable 401k optimization tool, blooom. (You can get a free analysis from blooom here.)

Wealthfront is another great option if you want to balance the advantages of personalized investing strategies with the cost-saving features of robo-advisors. Wealthfront will automatically build you a personalized portfolio with diversified, low-cost index funds. You can also customize your portfolio yourself and invest in socially responsible funds, healthcare, technology, clean energy, and more.

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About the author

Total Articles: 54
Based in Chicago, Lou Carlozo is a personal finance contributor for Reuters Money, a columnist with, and a former managing editor at AOL's Contact him with story ideas for Money Under 30 at, or follow him via LinkedIn and Twitter (@LouCarlozo63).

Article comments

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Papa Foxtrot says:

I have heard people say that companies will sometimes provide a match to your own investments up to a certain point. It never hurts to ask.
One of the best ways to diversify your portfolio is a REIT. REITs provide excellent returns, but they are taxed quite a bit in their dividends, but not nearly as much as they are in a Roth or a 401k. Then they become a powerhouse.

Thibault says:

I have a very important question for the community- Roth IRA or traditional 401(k)? Which would you rather have?

Sarah says:

What about pensions and deferred comps? What are your recommendations for those? I have been working for local government for almost three years. I pay almost $70 into my pension and almost $100 into my deferred comp per paycheck. What else can be done to save enough money for retirement?

Clark says:


Do you think it’s best to find a list of perhaps 10-20 stocks that you like and continually invest in those companies as opposed to buying one large (entire monthly budget for investing) in one company and diversifying and finding a new stock every month.

Laura says:

Hi – What exactly is returning 8.5% in this market ( per your example to $1M?

Also- are you saying $1Mis enough to retire on? I did not think it was?


Nicole W says:

Any chance we can get this updated since you’re other article notes we need $2M, not $1M?

I’m maxing out my 401k but not sure if I want to invest in a Roth because of my tax bracket.

Albert says:

Great article. I wasn’t smart enough to begin investing in a 401(k) when I started my first job at 19 but I did so when I was 27. Joining the military forced me to be more careful with money to be able to maintain my clearance. My wife and fully max out both of our Roth 401(k)s and Roth IRAs and later on down the road I expect to get full retirement. It feels like I’m always trying to play catchup but someone I work with said that the retirement alone is worth more than $1 million over a 30-40 time period. How do you suggest military members invest when they expect to receive full retirement beginning at age 40-45?

Alex says:

Lou, thank you for the great article. I would be interested in your perspective on Roth 401(k)’s. Many companies have began to offer the Roth 401(k) since its implementation in 2006. Could you speak to the advantages of putting the company match in the traditional 401(k) and the rest in a Roth 401(k)? Or other common scenarios/questions you encounter.

Steve says:

Alex, company matches are always pre-tax and, if you have a Roth 401-k (like I do), then they put the match in a separate account for you. It has to do with tax benefits for the company.

Adam says:

Whether you should consider a Roth is entirely dependent on your tax bracket. The lower your effective tax bracket the more beneficial a Roth may be. There’s tax risk hedging and bracketed withdrawal strategies that could make some Roth contributions I good idea even for the rich, but let’s talk about Roth for the common man.

I’d currently advise a friend to contribute to a Roth only after there Adjusted Gross Income (AGI) is in the 15% bracket or below(that’s $37.5K for 2015). Now just because your salary is higher than that doesn’t mean you can’t get your AGI down to $37.5K.

For ex., Joe Smith is a young prof that makes $60K per year. His Stand Deduction and Per Exemption bring his AGI to about $49.5K per year. Joe also contributes $12K to his traditional 401K. Joe’s AGI is now exactly $37.5K in 2015.

Joe now has the option to contribute to a Roth IRA or Roth 401K within the 15% tax bracket. Had his AGI been above $37.5K then he would be paying 25% tax.

Joe decides to max his Roth IRA for 2015 with a contribution of $5.5K.

Final notes: Joe is still $6K below his 401K contribution limit of $18K for 2015 [18K -12K = $6K]. If he can find the funds, he can still elect to make a Roth contribution to his 401K. Most employer 401Ks will allow you to make both Traditional and Roth contributions, and keep the amounts in two separate accounts.

Mike says:

I’m currently maxing out my retirement savings $18,000 + $5500 Roth IRA. I’m getting married in May, and will soon have to start paying off my fiancée’s student loan debt, not to mention, fully covering the living expenses of her son (who I will be adopting). So, for the next several years, we probably won’t be able to max out our retirement funds, but luckily I got a great start over the first 8 years of my career.
We are definitely going to contribute at least 5% of my salary to get my company match, but I’m not sure how much more than that we’ll be able to muster, even with our combined salaries.

Nice writeup. I definitely max mine out each year plus a full Roth IRA.

Ellen says:

What do you recommend for the self employed/freelancers? I have a small IRA from a 401K back when I worked at a small company. Now that I own my own business, I know I should be saving for retirement, but not sure how much (in relation to my debt payoff). Any thoughts you have for those of us without 401K employer matching are appreciated!

Ginger says:

You could open a solo 401k though vanguard and your “company” could match 25% of your net income (minus expenses and self employement FICA).