4 Secrets of 401(k) Millionaires

Although they're relatively rare -- retirement plan administrator Fidelity says they only make up about 2% of its account holders -- a handful of people have amassed a million-dollar nest egg entirely within their 401(k).

How is anyone capable of reaching this seemingly out-of-reach number, given this investment vehicle's inherent limitations (like contribution caps and limited investment choices)? Almost all of them certainly did four things, none of which are complicated, but all of which can be challenging.

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1. They maxed out their employer's matching contribution

Almost all 401(k) plans offer some sort of employer match. That is to say, your employer will contribute additional money to your account based on the amount of your own money you contribute to the cause.

There are limits, though. While not etched in stone, a fairly typical matching schedule is 100% on the first 3% of your own salary you put into your plan, and then a 50% match on the next 3% of your wages contributed to your 401(k) account.

That's not a huge amount of money, but it's free money.

2. They stuck around until they were 100% vested

That being said, while your employer might make a matching contribution to your 401(k), it's not necessarily yours to keep as soon as it's deposited. Almost all plans require you to remain an employee for a minimum amount of time, granting you more and more of this match each time you pass a calendar-based milestone.

A common "vesting" schedule only allows you to keep 20% of your employer's match after just one year of service, 40% after two years, and so on. After five full years, these employer contributions become 100% yours to keep, even if you leave the company.

Just know that your contributions from your own paycheck are always 100% yours to keep, no matter how long you stick with the job.

3. They played the performance odds

Most 401(k) plans offer several mutual fund options, including actively managed funds with seemingly savvy strategies for outperforming the market. Ironically, however, most of them don't actually achieve this goal. Data from Standard & Poor's indicate that over the course of the past five years, nearly 89% of large-cap mutual funds trailed the performance of the S&P 500 (SNPINDEX: ^GSPC), while over the past 10 years, more than 85% lagged the benchmark index. This sort of underperformance isn't unusual at any time or over any time frame, either.

The point is, if you want the highest odds of the best-possible performance, your best bet isn't attempting to beat the market. It's merely matching its results with a basic index fund.

4. They started early

Last but not least, today's 401(k) millionaires almost certainly started very early and let time do most of the work.

For perspective on the power of time, assuming you achieve the S&P 500's average annual gain of 10%, every dollar you invest in the index today would be worth roughly $2.59 in 10 years (according to Calculator.net). In 20 years, though, it would be worth $6.73, and in 30 years, that $1 would be worth $17.45.

So, start early, even if you're starting small.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.