How 401(K) Sprints Can Make You A Multi-Millionaire (By AGE!)

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2:46What's up, everybody? And welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of MasterMoney.co. And today on the Personal Finance Podcast, we're going to be talking through how 401k sprints can make you a multimillionaire. If you guys have any questions, make sure you join the Master Money newsletter by going to mastermoney.co slash newsletter and follow us on Spotify, Apple Podcasts, YouTube, or whatever podcast player you love listening to this podcast on. And if you want to hop out the show, consider leaving a five-star rating and review on Apple Podcasts, Spotify, or your favorite podcast player.

3:23Now today, we're going to be diving into what we call 401k sprints. And I'm going to be introducing this new concept that I think is going to be freeing for a lot of you out there because you are going to learn that maybe I don't have to be super disciplined for the rest of my life. Maybe if I get hyper focused for short periods of time, I can then build a tremendous amount of wealth, be on track to retire and do anything I want in my life because you are pursuing financial freedom. That is why we are trying to ensure that we are saving for retirement and getting our money right so that we have either the option to leave a job or we can leave a job that we absolutely hate.

3:59So freedom is the goal. And we're going to talk through some of these 401k sprints. Now, you've most likely never heard of a 401k sprint. And this is a term that we have come up with talking through some of these focused and intentional periods that are for shorter periods of time, usually anywhere from five to 10 years. But I'm going to give you a bunch of options in this episode today, where you go all in on maxing out your retirement contributions, knowing that you won't necessarily be sustainable for long term, but you're going all in for a shorter period of time and trying to save aggressively during that time frame.

4:30Instead of having to save extremely aggressively and trying to max out those accounts for 30 to 40 years, you may have a specific goal and you kind of know where your retirement number is going to be. And so you're willing to pick a window of time where you're going to get ultra disciplined, you and your family are going to buckle down and you're going to start to save in these retirement accounts, max those puppies out. And then from there, let compound interest to do all the heavy lifting for you. Now, the power of compound interest is absolutely amazing. We're going to show you some of the calculations today in this episode on how cool this is.

4:58Now, what this does is it flips traditional retirement ideas on its head, meaning instead of you just saving a small amount over time, which is a tremendous way to save for retirement. But instead of you saving those small amounts every single year over time, you choose these sprint periods and you can have these short bursts of intensity that allow you, if done correctly, to have massive long-term results. Now, here's how this works in practice, okay? You pick your sprint period. Maybe your sprint period is even less than five years. Maybe it's five years, maybe it's seven years, maybe it's 10 years, or maybe you even want to just do a couple of years to get the ball rolling when it comes to getting your financial life right.

5:34Now, during that time, what is going to happen is you're going to contribute the maximum amount allowed into your 401k or similar accounts like your 403b, your 457, your TSP, depending on what your employer sponsored plans are at where you work. Now, once the sprint is over, you could then either pause or reduce your contributions or just stick to the employer match if you wanted to, if it will keep you on target to hit your retirement number. But your invested money continues to compound for decades. So you got these dollars into these retirement accounts, they're going to continuously compound over time.

6:08Now, some people may be saying, well, isn't this just coast fire? No, this is a little bit different than coast fire because you're picking a very short timeframe to do some of these sprints. And then you're going to either decide, do you want to continue investing? And or do you want to take a break for a certain period of time? So maybe you do a couple of years on a couple of years off. We'll talk about those scenarios too. And it'll be more flexible for a lot more people out there. So some people may never have to contribute again. If you get really intense for five, seven, or 10 years, you may be at the point in time where you never have to contribute again.

6:39But if you are out there and you're saying to yourself, well, I just want to do a couple of years at a time, or maybe I want to do one year on, one year off, but I want to get really intense for those one years on, then you can do that for sure. Now, the secret behind these 401k sprints is the time value of money. This is what I want every single person out there to understand. The earlier and the more aggressive you get with these 401k sprints, the more time you have for these contributions to grow exponentially. So every single dollar that you invest in your 20s or 30s can be worth 10 to 20 times more in the future if you get those dollars working right now.

7:13So this is why I want a lot of young people out there listening. If you can figure out ways to do some of these 401k sprints early on in your investing journey, those dollars are going to be so much more valuable than someone who has to start in their 40s or 50s. You have no idea how valuable this is going to be. And you're going to see in these examples today as we go through it, how valuable these dollars truly are. You have the opportunity to absolutely change your financial life just by going after some of these 401k sprints. Now, what are some examples of people who would actually be interested in a 401k sprint?

7:43One is before a major life change. So let's say, for example, you just get married. For example, my wife and I, when we got married, we knew we wanted to have kids later on down the line. During that timeframe, we decided, ooh, we're gonna have some extra income, some disposable income. We're dinks. We have dual income, no kids during that timeframe. so maybe we should try to save as much as we possibly can during this time. And then when kids come along, obviously things are going to get a little more expensive. So major life changes is going to be really, really powerful. Or maybe, you know, in a couple of years, you want to buy a house.

8:12You want to go really hard and make sure you're hitting those retirement accounts before you go out and buy a house. Or maybe, you know, retirement's coming down the road in 10 years and you need to get the ball rolling. You're in your 50s. You want to make sure that you have a great retirement. That's a great reason. Or maybe you feel like you're late to the retirement game. you're in your late 50s, early 60s, and you need to get the ball started. That is another great reason. Or maybe your kids finally left the house. You're in your 40s, maybe your early 50s. These major life changes are happening.

8:39They finally went away to college. They're on their own now. And now you have some extra income and you want to do a 401k sprint as well. There's so many different reasons and major life changes that could be happening. Secondly, is a career peak. Let's say, for example, you got a big raise, you got a big promotion, and you got these extra dollars coming in. You want to make sure that you are taking advantage of all the hard work that you are taking on, meaning you're working hard day in and day out at your day job. You don't want this money to just get wasted away. You're not working hard for no reason.

9:06You're not working hard to buy a depreciating asset like a car that goes down in value every single year. Instead, you want to make sure that you're preserving this so that you can buy your freedom back. If that's you, that's another great reason. Or maybe you're just early on in your career. You want to live lean in your 20s, Or you want to live lean in your 30s and try to get some of these extra dollars working so that you can retire when you want instead of trying to worry about this later on in life. Or you just want to do a balance. We're going to talk about two on and two off sprints. And you want to have a balanced approach to saving, but you also want to live life a little bit.

9:36And so you want to come up with some ideas on how you can do that. It's not about just saving every year, but you can have these short bursts of intense savings that allows you to become financially independent. Now, first, before we talk through the 401k, I want to make sure that everybody understands what a 401k is. This is an employer-sponsored plan that you have through your workplace typically. And or if you're self-employed, you can look at a solo 401k. Or for those out there, there's also Roth 401ks. And so we're going to go through each and every single one of these. So the contribution limits of 2025, which is the time I'm recording this, is$23 ,500 for anybody under the age of 50.

10:11That's what they can contribute to their 401k. Now, if you're between the ages of 50 and 59, you can contribute up to$31 ,000 because this includes something called a catch-up contribution. Now, the catch-up contribution is$7 ,500 this year. And the beautiful thing about these are that they are going up every single year. Now, there is a new catch-up contribution that's called the Super Catch-Up Contribution, thanks to Secure Act 2.0. So people between ages 60 to 63 can contribute$34 ,750. That is something that is pretty new and a great option for folks who are late to the game. Now, these apply across all.

10:51So the traditional 401k, the Roth 401k, a 403b, a 457, a TSP, etc. All of those accounts, this will apply to across the board. Catch-up contributions, by the way, for those of you who can take advantage of those are such a powerful tool because they allow you to get extra dollars into these accounts without having to worry so much. You can accelerate your path to wealth even late in the game. So catch up contributions are another great reason to do a sprint. Let's say you do an early sprint in your 20s and then you do a sprint. Maybe you do a couple of years sprint in your 30s. Then you do another sprint in your 40s.

11:26And then when you hit your 50s, if you have those catch up contributions, getting more dollars in there, man, it's going to be a powerful, powerful tool that you can use. Now, what is the difference between a traditional versus a Roth 401k? This is very important to note for most people because the tax treatment truly, truly matters. And so you need to understand your tax situation. And I highly recommend if you have a CPA, go to your CPA and say, hey, which one is better for my financial situation right now? So a traditional 401k, it means you're contributing with pre-tax contributions. So you get a tax deduction today, meaning your money grows tax-deferred in a traditional 401k, and then it's taxed as ordinary income in retirement when you withdraw those contributions.

12:05Now, the hope is you have a lower income possibly in retirement, and so typically, you may get a favorable tax treatment if that were the case. Now, secondarily, though, is the Roth 401k. Now, the Roth 401k is an amazing account because of tax-free growth. So this is post-tax contributions, meaning your money's already been taxed, and you contribute money to the Roth 401k. But the difference is the money in the Roth 401k grows tax-free and you can pull the money out tax-free. Now, one big caveat with the Roth 401k that is very, very powerful is there are no RMDs in a Roth 401k. No required minimum distributions in this Roth 401k.

12:41Very important to note because in a traditional 401k or a traditional 457 or 403b, all of those are going to have required minimum distributions where you have to pull money from that account. the IRS says, hey, I want you to pay taxes at some point in time on this money. So you're going to be required to pull money out of these accounts. And so you need to understand that. Now, how do you decide between the two? First, number one, always talk to your CPA. If you have a financial advisor in your corner, talk to them and have them look at your tax situation. Very, very important. But some general rules of thumb.

13:12If you expect to be in a lower tax bracket in retirement, a traditional could be a great option. But if you expect to be in a higher or similar tax bracket, a Roth is a great option. Now, here's the powerful thing. We've talked about this a number of times. Let's say, for example, you max out a Roth 401k for 40 years. If you did that at a 10 % rate of return, guess what's going to happen there? You're going to have about$10 million in that Roth 401k because it's incredible what happens when you max these accounts out. But here's the powerful part. About$9 million in that Roth 401k is completely tax-free because they have that tax-free growth.

13:44So you really want to make sure that you're not taking this decision lightly. You've got to look at your situation and decide between the two. And you can also do a hybrid strategy. You can split contributions between both to hedge tax risk if you wanted to go that route too. So a lot of great stuff here as we go through this. Now I'm going to go through the different types of sprints that we're going to be talking about in this episode. And then we will go through examples of those sprints by age, because I love to give you guys examples. I want you to see what it would look like if you're in your 20s and you started to do a sprint, or if you're in your 40s and you started to do a sprint, what is this going to look like and how much would you actually have in retirement based on specific rates of return.

14:21So first, I'm going to explain all the sprints that we're going to go through, and then we're going to talk through this by age. All right, so I'm going to give you a bunch of different sprint strategies. So the first one we're going to be talking through is something called the five-year sprint. Now, a five-year sprint means you are going as hard as you possibly can for five straight years trying to max out contributions in your retirement accounts and trying to just shove as much money as you possibly can in those retirement accounts. Now, there's a number of different things that you can look at here.

14:48Now, for example, if you start at age 25 and you aggressively max out your contributions for five years and then stop by age 65, you'd have$1.5 million. So just for contributing and maxing it out for five years, you'd have 1.5. And another example is if you started at age 30, you'd have 1.4. Another example is if you started at age 40, you'd have$743 ,000. So early sprints equals maximum compounding power. But these five-year sprints are something we're going to look at by age. Then there's the seven-year sprint. So if you're someone who is saying to yourself, nah, that's not enough money. When we reach that point in time where we get to say$1.5 million, I want to have a lot more in retirement than then.

15:24We can look at a seven-year sprint. And we're going to look at this middle ground to see what the difference is. Next is a 10-year sprint. Now, this is one, a lot of people in the financial independence space, who are trying to retire as fast as they possibly can, they will look at these 10-year sprints. And people have become completely financially independent by just really going hard for 10 years. We'll do an entire episode talking through how to become financially independent in 10 years or less, because it's a very important concept that I think a lot of people are looking to do. They want to become financially independent as fast as possible.

15:54What does that look like? And then we're also going to talk about the two on two off cycle. So the two on two off cycle is going to look like this. You go really hard for two years and you max out contributions in your retirement accounts. then you take your foot off the gas. You can either ease off for two years and or reduce your contributions to zero for two years. And then you repeat this over and over again. So this is going to allow you to a max out contributions in certain years where you know, you can go hard. You have some extra dollars on hand. Maybe you just got a raise and you're going to feel it as much.

16:22And so you can get those extra contributions into those accounts. And then some other years, maybe you're taking the foot off the gas. Now, what are some examples of people who would do a two on two off? So maybe, for example, you know, you get a big bonus at the end of every year. And so some years you want to take that bonus and you want to enjoy the money. And then some years you want to take that bonus and you want to make sure you're maxing out your retirement accounts so that you can prioritize freedom. That's a great example. Or when you get a tax return every year, let's say you get a bigger tax return every single year.

16:50When that money comes in, you can decide one of two things. Do I want to max out the rest of these accounts with this tax return? Or do I want to spend this on something that brings me value? Now, when it comes to financial windfalls, the balanced approach to those is to do the 50-50 method, meaning 50 % goes to you and you could spend it on whatever you want. And 50 % goes to future you and you can put it towards retirement, emergency fund, those types of things. That's the balanced approach that I like to take. But for some of you who want to do some sprints, you're going to want to take these financial windfalls and stuff them into as many investment accounts as you possibly can during those sprint periods.

17:22And so for some of you there, a balanced approach of two on two off might be the best ways to go. Now, this is going to emphasize that consistency over time can lead to massive results if you do two on, two off. So these are the different cycles I'm going to talk about. You can creatively come up with 401k sprints that matches what your lifestyle is as well. So think through this. Maybe you want to do six months on, six months off throughout the year, and you want to split the year into two. Maybe you want to do one quarter on, one quarter off, and you want to split the year up so you have enjoyment times and you have buckle down times where your family really buckles down.

17:54All of these can be ways that you can creatively come up with this. And so if you have some new ideas as we go through this by age, I want to hear them. I want to hear what you plan on doing. And if you plan on doing some of these sprints, leave them in the comments on YouTube or Spotify, and or you can send them over to me via email as well. But I want to hear what type of sprints you are considering doing. Now, let's get in to some scenarios of 401k sprints by age. If you've ever felt like your bank is working against you instead of for you, you're not alone. Between overdraft fees, monthly fees, and just trying to access your own money, it all adds up fast.

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