How do people have massive retirement accounts if it's a $19,500 (or whatever) limit per year?

[Anonymous]

I feel like I'm not grasping the basics here... From my read, assuming you don't have your own business and are just an employee, and make enough savings to max out your retirement account, we can only give $19,500 a year, right? Plus $6,000 to Roth.

So how do people end up with these gagillion dollar retirement accounts? Did they start saving from age 20? Is there a way to give more than $19,500 plus $6,000 if you have the income/savings to do so?

[Anonymous]

My DHs retirement account is bananas because his company matches 100% of the employee contributions. My company only gives 3% of the employees salary (automatically). We are in our mid-30s and both max out our contributions. His account is... double mine.

[Anonymous]

Some employers match what you put in. I don't have that perk, but I think my DH can get up to $38,000/yr in his account through his employer match. And if you start early on, and you have good returns, that can turn into a sizable amount.

[Anonymous]

Not to a pre tax account no, unless you are over 50 and then can do catch up contributions. Don’t forget people may also have an employer match of some sort, which can be significant. My spouse gets a 10% match.

And the magic is early contributions + compounding + the market we’ve been in lately.

I’m 41, working since 26, started contributing the max pre tax at 30, but always contributed enough to get the 5% my employer offers and I have just over $600k. If I’d started working earlier and prioritized contributing the max earlier, I’d be in an even better situation.

[Anonymous]

Matching, profit sharing, exceptional returns the past decade or so, taxable savings.

[Anonymous]

Anonymous wrote:Not to a pre tax account no, unless you are over 50 and then can do catch up contributions. Don’t forget people may also have an employer match of some sort, which can be significant. My spouse gets a 10% match.

And the magic is early contributions + compounding + the market we’ve been in lately.

I’m 41, working since 26, started contributing the max pre tax at 30, but always contributed enough to get the 5% my employer offers and I have just over $600k. If I’d started working earlier and prioritized contributing the max earlier, I’d be in an even better situation.

Same here. If I'd maxed out those first few years (I easily could have), I'd be fantastic shape. I am 49 and have ~$2m in retirement savings.

[Anonymous]

Anonymous wrote:I feel like I'm not grasping the basics here... From my read, assuming you don't have your own business and are just an employee, and make enough savings to max out your retirement account, we can only give $19,500 a year, right? Plus $6,000 to Roth.

So how do people end up with these gagillion dollar retirement accounts? Did they start saving from age 20? Is there a way to give more than $19,500 plus $6,000 if you have the income/savings to do so?

Length of time - my DH started working full time at 18, right out of high school. He IMMEDIATELY started putting 10% of his salary into his 401K. He has always gotten employee matching (usually up to 5%.) He only made $16,000 when he first started working. He's now 52, so 34 years of contributions and earnings. He still isn't a huge wage earner according to DCUM standards, only $135,000K. I don't think he's ever put the max in, but he's always done at least 10%, with the 5% matching. He has $1.4 million in his 401K.

[Anonymous]

We have an LLC, so self employed. We can contribute as both the employee and employer for both my spouse and I. Combined, we can contribute anywhere from $60K to $100K per year. We've been doing this for close to 20 years.

But, we also pay self employment tax, which is about 11 to 12% of the business income, and we still pay regular income tax.

So, while this structure enables us to contribute a lot to our retirement account, it also means we pay a lot in self employment tax.

[Anonymous]

here are some good charts showing how it happens.

Eventually people saving into ira or similar are earning more on their invested amount than the amount they contribute each year.

https://money.usnews.com/investing/investing-101/articles/2018-07-23/9-charts-showing-why-you-should-invest-today

[Anonymous]

I think that some people also include after-tax brokerage accounts in their retirement calculations. We save in one because we want to have the option to use those funds for either college or retirement. Do not underestimate the power of a generous employer match and the incredible market we’ve had the last several years. I am 45 and have been maxing my 401k since I started working at a law firm at age 28. Most of that time, I had very average employer matches. But for the last six years, I’ve worked where they match 10-12%. That, combined with the market, puts me at $940k just in 401k accounts. Add in IRAs, and I’m at 1.1M. It’s just been having enough money to max, having that employer match, and having a simple set it and forget it indexing strategy.

[Anonymous]

Anonymous wrote: Is there a way to give more than $19,500 plus $6,000 if you have the income/savings to do so?

Currently (may change next year), you can put:
19.5k pretax 401k
6k ira traditional or if over income limit, backdoor Roth IRA
7.2k hsa
+ catchup 6.5k for 401k pretax and 1k in IRA if over-50, and hsa 1k if over-55
And company-plan dependent:
+ 401k pretax match
+ 401k aftertax for the balance up to 58k (64.5k over 50)

[Anonymous]

Power of compounding. Start maxing early, as soon as you can.

[Anonymous]

For a couple, that's 51k/yr + any employer contributions and then compounded during great market years even without anything unusual like a 457 or SEP IRA. If the couple is in their 40s - 60s that's a lot of time to contribute and compound.

[Anonymous]

Rule of 72. Plus we get 20% growth most years.

[Anonymous]

Anonymous wrote:Power of compounding. Start maxing early, as soon as you can.

This. Started at my first job making $18k and I was thrilled to make that. Match at the time was 6% from my employer, so I put away 6% of my salary. Upped my contribution with every raise, with every new job, and while I can't remember when I maxed (definitely late 20s/early 30s), it grew amd grew.