Color of Money: The 401(k) millionaire next door
WASHINGTON -- If you have a 401(k) or similar workplace retirement plan, you need to be up in arms.
As part of the GOP's push to overhaul the tax code, some in Congress want to drastically reduce the amount of pre-tax money you can contribute to this savings plan. Simply put, one of the best investment vehicles out there is under attack -- and it could cost you a secure retirement.
Workers can now contribute up to $18,000 each year to a workplace plan such as a 401(k) or the federal government's Thrift Savings Plan (TSP). This amount is scheduled to increase by $500 in 2018.
If you're over 50, a catch-up provision allows you to contribute up to $24,000 to an employer-sponsored retirement plan.
With the ability to save so much money in a 401(k) every year, you can let compounding interest do its wonderful thing.
We know Social Security isn't so secure with its projected funding shortfall coming soon. And company pensions are becoming a rare benefit. So the burden of your retirement financial stability rests largely with you.
The proof of the success of the 401(k) or TSP has been the ability of an increasing number of participants to reach a high milestone.
The TSP had 16,475 millionaires as of August of this year. There were 2,675 millionaires in the same month in 2014. TSP millionaires are a small group relative to the 5.1 million participants, but it's clearly growing.
As of year-end 2014, Fidelity Investments said that 72,000 of its 401(k) accounts held more than $1 million. This is up from 59,000 in 2013 and 21,000 in 2009.
In a recent column, I asked these millionaires to share their stories. This is what they told me: They didn't come from money. They became millionaires by patiently putting money into their company plan every paycheck. They took advantage of company matches. When they got raises, they increased their contributions. They didn't cash out of their retirement account when they moved to another job. They didn't panic when the stock market experienced major dips.