How big can it get? (Your retirement account)

[TreeTired]

I think it is rude to ask outright,  but I am wondering how big of a 401k  or IRA account (total) people are able to amass.  If not your own,  what have you heard of?  In my case, I remember opening an IRA account when they were first available,  must have been around 1981 because I had a time deposit that yielded 16.5%  (Interest rates were very high then).  I very soon became ineligible for deductible IRAs and stopped contributing.  I did participate in 401k plans over the years.   I have made tons of investment mistakes including keeping my retirement assets in cash for years, especially after the crash of 87.  During a 3 year period of working overseas I was not eligible for my company's 401k plan.   I stopped working in 2007.   In spite of all these issues,  my IRA balances (which now include all prior 401k plans) are now just over $1mm.

I am thinking this balance could easily be $3mm if I had consistently and blindly invested my retirement + employer match funds in stock market indices.  Could it be $5mm?

I recall reading that Romney had an IRA account worth over $100mm because he was able to fund it with stock valued at pennies that magically grew to that amount,  but without "tricks" I am wondering what kind of IRA/401k balances are achievable over a 30 or 40 year working career using prudent investment strategy and maximizing employer match but not necessarily maximizing your personal contribution,  ie nothing "draconian",  just reasonable saving.

I suppose I could ask my sister and brother in law, but we don't generally discuss our financial details.  They have worked for a single employer for about 35 years and should have substantial 401k balances by now.

[ShortInSeattle]

Sounds like a math problem. If you put in X amount for Y years at Z average return....

Not really sure what you are asking.

[SnackDog]

I guess if you invested $15,000 per year from ages 20-65 at 7% growth you would have $15mm or more before you croaked.

[nicknageli]

I can't find the article now, but I remember reading where someone had many millions in their 401k because they contributed a bunch of after tax income to it.  Wish I could find the article.

[Cheddar Stacker]

The maximum tax deferred compensation was $51K for 2013, and is $52K for 2014 (inflation adjusted each year). This isn't reached by most people, but I see business owners hitting the limits every year with profit sharing plans. If you could get away with that for 40 years I'm sure you could reach $10M with average returns.

[foobar]

I get just under 200 million assuming you invest 51k/yr for 45 years (adjusting for inflation) and then you turn around and pick the right stocks to get you 20% avg return. Given how many stocks do 20%/yr (there are a half dozen for each 10 year period), how hard good this be?:):):)

From a practical point of view, a 401(k) over about 10 million loses a lot of value. You are going to be paying more in taxes in taking the money out that you would have by by paying taxes at the start and investing it in a tax efficient manner. Not this is problem many of use are likely to have.

The maximum tax deferred compensation was $51K for 2013, and is $52K for 2014 (inflation adjusted each year). This isn't reached by most people, but I see business owners hitting the limits every year with profit sharing plans. If you could get away with that for 40 years I'm sure you could reach $10M with average returns.

[kyleaaa]

I would say $100 million sounds like a reasonable max. Every once in a while, somebody gets insanely lucky.

[SnackDog]

Uh, the max contribution is currently $17,500 plus $5000 extra if you are over 50.  I suppose it could hit the trillion dollar mark with lucky investing. There are penny stocks which hit the 1000% rate all the time.

[Left]

The 17500 max isn't the real max though, it doesn't take into consideration the company match. this article does a better job describing it
https://origin.bankrate.com/finance/retirement/employer-match-counts-toward-401k-limit.aspx

[arebelspy]

Right.

For example, here is the IRS publication for a solo 401k: http://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans

It states:

Total contributions to a participant’s account, not counting catch-up contributions, cannot exceed $51,000 for 2013 and $52,000 for 2014.

[bacchi]

The maximum 401k contribution in was $10,500 in 2000. It was of course lower in 1995-1999.

http://www.401khelpcenter.com/2006_limits.html

[foobar]

In theory though you can have more than 1 account.
The rules are basically
1) An individual can contribute up to 17.5k to all accounts
2) Each account has a max of 52k
3) Controlling entities can only contribute 52k for all of their accounts

Controlling entity pretty much means you can own more than a certain percentage of the company. You can't just set up 2 companies with you as the ceo of both.

For an example, lets say you make 700k working for the man and 300k working for yourself
a) mega corp: 17.5 employee contribution+ 34.5k corp match = 52k
b) moonlinghting: 52k company match = 52k

for a total of 104k in your 401(k) per year.  Yeah the number of people that this applies to has to be pretty close 0:)

And for even more fun you can contribute like 200k/yr to your pension plan if your old enough. Then you can roll that over into an IRA. That is a slightly more practical way to get another 2-3 million in your retirement account.

Right.

For example, here is the IRS publication for a solo 401k: http://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans

It states:

Total contributions to a participant’s account, not counting catch-up contributions, cannot exceed $51,000 for 2013 and $52,000 for 2014.

[letro]

NC_MJ Your one million from 1981 sounds about right.   I started 401k about 1982 is now 1.2 million. Folks forget that the max contribution was 16% of base salary.   So in 1982 making 25K increasing to 125K now.  The current 17500 + 5000 is a new nice contribution limit, a rather recent development.  I remember in 1983 the president of company visiting small groups and telling us young folks save in 401k.  He said you will have a million at retirement in addition to the company pension.  Smart guy, I listened to him and other older employees, the money guys.  Keep Smiling letro

[soccerluvof4]

Numbers like these should open the eyes of many I would hope. The old saying its not what you make but how you invest it .....

[SnackDog]

Ok. If you put about the max in each year (about $50k) starting at age 20, by the time you retire at 65 it will be about $40 million. If you don't make withdrawals (illegal, I know), it will grow to nearly $1 billion if you live to be 100. This all assumes the wildly high investment return of 10% annually.

[Left]

except past age 70? you are force to take money out of the 401k....

[StetsTerhune]

There are some wild backdoor methods that I've heard of people doing if they own their own business.

I don't know a ton of details, but someone once described in some detail what they'd done to get high seven figures in their IRA -- basically after she'd had to reincorporate the business after splitting off some assets she'd started a retirement plan as a defined benefit pension plan (which has big start-up costs, have to get an actuary to sign off on it, etc.), but then you can define the retirement benefit almost anyway you want to and then fund it pre-tax. So she defined the plan as paying 100% of salary starting at age 65, and started funding it at age 60. Since it takes a huge sum to fund 100% salary pension, she's allowed to plow all the business profits into the plan to fund it. Then when she retires, she can just roll it into an IRA.

Like I said, I don't know any of the nuts and bolts of this, and doubt it's half as simple as I just described it, but that's how it was described to me.

[foobar]

Defined benefit plans only let you get about 3 million and you get more than the limit, the government basically gets it when the plan shuts down. The trick of putting in preIPO stock (see the guy with the 95 million roth ira)is a lot more effect. It is also questionable how legal it is:)

There are some wild backdoor methods that I've heard of people doing if they own their own business.

I don't know a ton of details, but someone once described in some detail what they'd done to get high seven figures in their IRA -- basically after she'd had to reincorporate the business after splitting off some assets she'd started a retirement plan as a defined benefit pension plan (which has big start-up costs, have to get an actuary to sign off on it, etc.), but then you can define the retirement benefit almost anyway you want to and then fund it pre-tax. So she defined the plan as paying 100% of salary starting at age 65, and started funding it at age 60. Since it takes a huge sum to fund 100% salary pension, she's allowed to plow all the business profits into the plan to fund it. Then when she retires, she can just roll it into an IRA.

Like I said, I don't know any of the nuts and bolts of this, and doubt it's half as simple as I just described it, but that's how it was described to me.

[hodedofome]

I started contributing 10% of my meager salary in 2006 to my 401k. I paired that down to 5% so that I could put the other 5% in my Roth IRA. I get a 3% company match to my 5% contribution. As of today it's a little over $100k in value. I wish I knew what I was doing when I first got in. I moved it around a little too much and probably made lower returns than had I just bought and held. All told it's probably around $150k with my wife's teacher retirement from when she worked, as well as our Roth IRAs.

[FIPurpose]

Tell me if I'm wrong on this, but if you owned a business that ran as a corporation that was owned through a self-directed Roth IRA. Couldn't you technically take what you need as salary, and the rest of your profits be dividends that go directly to your Roth?

If that's legal I could see any number of ways of getting into the millions.

[foobar]

You can't invest in a business that you control over using an IRA. The guy that got 95 million in his roth didn't technically control the company (he only owned like 10%of it). You might be able to pull it off with a partnerships (i.e. you each own 1/3rd) but your getting into a really gray area. And you also can't take what you need as salary. You need to take a "reasonable" salary. Good luck defining that:)

Tell me if I'm wrong on this, but if you owned a business that ran as a corporation that was owned through a self-directed Roth IRA. Couldn't you technically take what you need as salary, and the rest of your profits be dividends that go directly to your Roth?

If that's legal I could see any number of ways of getting into the millions.

[Trirod]

As a CPA, I see quite a lot of retirement accounts.  The biggest I usually see are in the $3-4 million range - don't see too many higher than that.  In fact mostly I'm surprised at how small they are for people with high 6 figure income.

I have one 89 year old client whose IRA is just uunder $4 million. His required minimum distribution for 2014 is over $300,000.  Try spending all of that at 89 years of age!

[foobar]

Well 50% of it goes to the nursing home which only leave 150k for picking up gold diggers:) Having 4 million in an ira at 89 is pretty impressive consider he has been spending down 4%+ for over 19 years.  Granted the great bond bull market really help but still.

I hope he has  a couple of 3 year old grandchildren to give the account to just to see how long you can put off the money being taxed:)

As a CPA, I see quite a lot of retirement accounts.  The biggest I usually see are in the $3-4 million range - don't see too many higher than that.  In fact mostly I'm surprised at how small they are for people with high 6 figure income.

I have one 89 year old client whose IRA is just uunder $4 million. His required minimum distribution for 2014 is over $300,000.  Try spending all of that at 89 years of age!

[TreeTired]

As a CPA, I see quite a lot of retirement accounts.  The biggest I usually see are in the $3-4 million range - don't see too many higher than that.  In fact mostly I'm surprised at how small they are for people with high 6 figure income.

I have one 89 year old client whose IRA is just under $4 million. His required minimum distribution for 2014 is over $300,000.  Try spending all of that at 89 years of age!

Thanks for the reply.  That is what I was mostly wondering about.   Captain Obvious (that's me) says there is no requirement to spend your RMD.  You just withdraw it, pay your tax bill and reinvest it or put it in your savings account.

[dragoncar]

As a CPA, I see quite a lot of retirement accounts.  The biggest I usually see are in the $3-4 million range - don't see too many higher than that.  In fact mostly I'm surprised at how small they are for people with high 6 figure income.

I have one 89 year old client whose IRA is just under $4 million. His required minimum distribution for 2014 is over $300,000.  Try spending all of that at 89 years of age!

Thanks for the reply.  That is what I was mostly wondering about.   Captain Obvious (that's me) says there is no requirement to spend your RMD.  You just withdraw it, pay your tax bill and reinvest it or put it in your savings account.

Just wait until they implement the RME - required minimum expenditure

[Mr Mark]

Tell me if I'm wrong on this, but if you owned a business that ran as a corporation that was owned through a self-directed Roth IRA. Couldn't you technically take what you need as salary, and the rest of your profits be dividends that go directly to your Roth?

If that's legal I could see any number of ways of getting into the millions.

isn't that how mitt romney had such a huge IRA... very successful investment via a self directed account, with 50k per year on top as fresh tax free capital?

[foobar]

Not really. He put shares of his companies deals in the fund. That is a different than stock from a company that you have a controlling interest (I have no clue if Mitt had that or not) in.

I wonder how many millions Mitts trying to dodge taxes is going to cost given the changes in the tax code (i.e he could have cashed that money out at 15% instead of 35%+) after he made those moves.

Tell me if I'm wrong on this, but if you owned a business that ran as a corporation that was owned through a self-directed Roth IRA. Couldn't you technically take what you need as salary, and the rest of your profits be dividends that go directly to your Roth?

If that's legal I could see any number of ways of getting into the millions.

isn't that how mitt romney had such a huge IRA... very successful investment via a self directed account, with 50k per year on top as fresh tax free capital?

[clifp]

NC_MJ Your one million from 1981 sounds about right.   I started 401k about 1982 is now 1.2 million. Folks forget that the max contribution was 16% of base salary.   So in 1982 making 25K increasing to 125K now.  The current 17500 + 5000 is a new nice contribution limit, a rather recent development.  I remember in 1983 the president of company visiting small groups and telling us young folks save in 401k.  He said you will have a million at retirement in addition to the company pension.  Smart guy, I listened to him and other older employees, the money guys.  Keep Smiling letro

My first retirement saving also started in 1982.  It really went into high gear in 1984 when the new company had a 401K with generous match/profit sharing and I maxed out the contributions which for me were limited to 12.5% of my salary.  I stop contributed when I retired in 2000.  I haven't touched it and it has grown into $1.6 million now, all from really only 17 years of serious savings.  Plus smart/lucky investing.

[TreeTired]

This is pretty interesting!  Apparently the GAO has answered my question.   Their focus is on the multi (mega) millionaires who have more than $5mm in their IRA accounts... as in,  "how did they do that????"      I really don't like the term "millionaires" because you are including people that have $1 million in assets with people who earn $1mm per year... or per week...   or per day.   

http://www.marketwatch.com/story/how-to-shelter-hundreds-of-millions-in-an-ira-account-2014-09-19?page=2

There are two main ways to accumulate assets in an IRA: 1. Contribute up to the maximum each year. 2. Roll over a distribution from a defined-contribution pension — such as a 401(k) — or from a defined-benefit pension plan.

It would be nearly impossible to accumulate $5 million in an IRA using those two methods, the GAO found. If a couple contributed the maximum every year since 1975 (when the IRA was invented), they would have about $350,000 today if they had invested it all aggressively in the S&P 500 Index SPX,  A couple who rolled over the maximum from another pension could have earned about $4 million if they invested 100% in stocks.

[wtjbatman]

If a couple contributed the maximum every year since 1975 (when the IRA was invented), they would have about $350,000 today if they had invested it all aggressively in the S&P 500 Index SPX

That can't be accurate

[Cheddar Stacker]

If a couple contributed the maximum every year since 1975 (when the IRA was invented), they would have about $350,000 today if they had invested it all aggressively in the S&P 500 Index SPX

That can't be accurate

No offense wtjbatman but I give the gao a little more weight than you. : )

You're right though, it does seem odd. 40 years. Limits have increased along the way, but if you go with an average of $4k/year, which would be $8k per couple, that's over $300k in principle.

[TreeTired]

Aren't you quoting them out of context?   I will have to go back to the source article, but the part you left out is this:

if they had invested it all aggressively in the S&P 500 Index SPX,  A couple who rolled over the maximum from another pension could have earned about $4 million if they invested 100% in stocks.

I think the $350,000 figure is the total contributions amount with no earnings.

nope,  sorry,  you are correct.   The maximum annual IRA contribution was like..  $2000 or was it $1500 for many years?   I will check,  but it does make sense...your total contributions would only be $60,000.

[wtjbatman]

I don't care enough to go back and look at every years max contribution and do all that math (not the numbers nerd that so many people here are), but it just seems crazy that someone investing the maximum in their IRA in an S&P 500 index fund over a nearly 40 year period (!!) would only have $350,000 available to them today. My monthly budget is pretty low and even I couldn't retire with that stash.

Edit: Ok I lied, I had to look it up. What I found definitely explains it. From 74 to 80 the contribution limit was $1500 a year. Then it was raised to $2000 and stayed there for the next 20 years. Then in 2002 it was raised to $3000. $4000 in 2005. $5000 in 2008. And now it's currently $5500. Even factoring in inflation, it sounds like people can contribute significantly more purchasing power to IRA's in recent years.