How to do smart work to become a millionaires

Retirement Accounts

Here's a quick look at how retirement savings accounts can help you reach your goals:

401(k), 403(b), and Other Employer-Sponsored Retirement Plans

These are perhaps the best savings vehicles for most workers. It's a good idea to take advantage of your company plan if one is available—especially if there's an employer match.

You can deduct your contributions, and the earnings in the account grow tax-deferred. For 2022, the elective deferral limit is $20,500, or $27,000 if you're age 50 or older. For 2023, it is $22,500, or $30,000 if you're age 50 or older.

Traditional and Roth IRAs

Most people with earned income can contribute to a traditional or Roth IRA. The major difference between the two IRAs is when you pay taxes. With traditional IRAs, you can deduct your contributions the year you make them. You pay taxes when you withdraw the money in retirement.

Roth IRAs work differently. You don't get the upfront tax break. But qualified withdrawals in retirement are tax-free. Those are made when you're 59½ or older and it's been at least five years since you first contributed to a Roth.

No matter what type of IRA you have, the contribution limit is the same. For 2022, you can contribute up to a total of $6,000, or $7,000 if you're age 50 or older, rising to $6,500 (or $7,500 if you're 50 or older) in 2023.

Simplified Employee Pension (SEP) and SIMPLE IRAs

The SIMPLE IRA is a tax-favored retirement plan that certain small employers (including the self-employed) can set up for the benefit of themselves and their employees.

SEP IRAs can be established by the self-employed and those who have a few employees in a small business. The SEP lets you make contributions to an IRA on behalf of yourself and your employees. Both SEP and SIMPLE IRAs are popular because they're simple to set up, require little paperwork, and allow investment earnings to grow tax-deferred.

For 2022, you can put away as much as $61,000 in your SEP IRA account and $14,000 in a SIMPLE IRA. In 2023, these limits rise to $66,000 in a SEP IRA and $15,500 in a SIMPLE IRA.

Taxable Brokerage Accounts

Taxable brokerage accounts provide a way to invest additional funds after you max out your retirement accounts. Be aware that you need to pay taxes on the income generated in these accounts in the year you receive it.

How to Make a Million Dollars

If you start early and save regularly, you can make a million dollars by contributing to your retirement savings accounts. To take full advantage, try to contribute the maximum limit.

Let's take a look at how an average person, let's call him Joe, can reach this million-dollar goal by the time he retires at age 67. Let's assume Joe:

Is single and age 33

Makes $50,000 per year

Has a 401(k) plan with a 5% employer match

Saves $4,000 a year in a Roth IRA

We'll assume his investments have a 7% return.

Joe takes full advantage of the employer match and defers 5%, or $2,500, of his salary each year. His employer contributes $2,500 each year as the match. For the purposes of this example, we'll assume Joe's salary remains the same until retirement. Of course, in real life, he'd likely get a raise and his nest egg would grow even more. Here's the breakdown of his savings over the 34 years.