How to become a 401k millionaire

Saving $1 million sounds like an impossible task, but there are realistic ways to achieve this dream. Lucky for many Americans, their trusty 401k has the tools to help propel them to millionaire status.

Read on to learn the strategies to get the most out of your 401k and grow your account to $1 million.

Tip No. 1: Max Out 401k Contributions

Make sure you’re taking full advantage of your 401k’s earning potential. Contribute as much as you’re allowed to, which is currently capped at $18,500 in pre-tax dollars.

Then see what your employer offers as far as after-tax contributions go, and try to save as much as you can.

Tip No. 2: Start Saving as Soon as Possible

It’s never too early to start building that nest egg. Even if you’re a fresh-faced teen who just got her first paycheck, get in the habit of squirreling some of that away for a rainy day far, far in the future.

If you have missed the jump on early savings, perhaps use it as a lesson — and be sure to teach your children the power of compounding interest over time.

RELATED: 7 things to do before you retire

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Figure out your stable retirement income.

Take stock of any pension or Social Security income you expect to get during retirement. This stable income should form the basis of your budget, but probably won’t cover all of your expenses. This is your base retirement income that your savings and investments build upon.

Look at your other retirement income sources.

Determine what you can expect to draw down from your personal retirement investments. You may want to meet with an investment advisor to develop a withdrawal strategy. If you want or need to continue working in retirement, you can also include any part-time income you expect to receive for the first few years of retirement.

Make your retirement budget.

Figure out how much you plan to spend during retirement. This can help you get a handle on whether or not you actually have enough money to retire in the coming year.

One good exercise is to figure out the absolute minimum you need to get by. This means paying essential bills including health care expenses, clothing, food, transportation and other essentials. Then, determine your ideal retirement budget. If you could have the retirement you really want, how much money would that take? This lets you add in things like dining out, traveling and other luxuries.

At a minimum you should be able to cover your bare bones budget indefinitely. But it’s better to delay retirement until you can afford the lifestyle you want. Working an extra year or two might help you to finance a more enjoyable retirement.

Check into your investments.

As you approach retirement, it’s a smart time to double check your portfolio allocation. You should be shifting your money into lower risk, lower reward investment options, such as bonds. You can still take some risks, if you can stomach potential declines in your investment portfolio. Just be cognizant of how a downturn in the market could affect your retirement plans.

Figure out your health insurance.

If you are 65 or older you may qualify for Medicare, but you should also look at supplemental insurance policies you might need. If you don’t yet qualify for Medicare because you’re retiring early, be doubly sure you have enough cash flow to cover an individual health insurance policy.

Use your paid time off.

Check into your bank of vacation time or paid time off. You should definitely use this before you retire, unless you can translate those banked days into cash at the end of your working years. If you plan to look for a new place to live in retirement, that’s an especially good use of any banked time off you have available.

Make a plan for your time.

Figure out what you plan to do with your time during retirement. The transition from working every day to a life of leisure can be surprisingly emotional. The best way to fend off boredom and depression is to stay active physically, mentally and socially.

Take some time now to plan a retirement celebration, vacation or to find some volunteer opportunities you can step into as a retiree. This will help smooth the transition into your golden years.

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Tip No. 3: Take Advantage of Matched Employer Contributions

If your employer has a matching program, recognize what they’re doing: For every dollar you put in, they’re giving you free money to help it grow faster. Have you ever turned down free money in any other scenario? If the answer is no, then make sure you’re contributing enough to get the contributor match.

For example, if you earn a salary of $40,000 and contribute just 3 percent of your pay (or $1,200), but your workplace gives a 50 percent match up to 6 percent of your salary, you’re missing out on $600 in free cash.

Tip No. 4: Watch Out for 401k Fees

Beware of the fine print. Not all retirement plans are created equal — and many of them charge fees to cover the administration costs associated with managing the investments.

Much like interest, fees can compound too, but that means bad news for your bottom line. Be sure to be aware of the fees on your accounts — and if they’re high, don’t be afraid to jump ship to a different contribution method once you max out your employer match benefits.

Click through to learn how to master your 401k.

This article originally appeared on GOBankingRates.com: How to Become a 401k Millionaire

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