What to Do If You Are 50+ With Over $2 Million in Your 401(k)

A sum of $2 million in a 401(k) is a pretty good figure. To put it in perspective, if you think about how many 401(k) balances are over 2 million, there aren’t quite that many. Reports show that the average balance for people in their 50s ranges from about $199,900 to $592,285. That means someone sitting at $592,285 is still over $1.4 million short of where you are. So, in that sense, you are already doing far better than the majority of your peers. But what counts as better or even enough is not the same for everyone. 

Where you live, how much you spend, your health status, and whether you are supporting children, paying alimony, or supporting a spouse — all of these will affect your present and future financial picture. On top of that, having other retirement savings outside your 401(k) changes the equation entirely.

And then there are the factors that affect all and sundry. Inflation, future market performance, interest rates, etc., can all eat into your retirement nest egg. Even with $2 million in a 401(k), the way you manage your withdrawals and pay taxes will determine whether that money funds a luxurious retirement, a comfortable one, or just a modest lifestyle. 

So, while being in this position is definitely something to feel good about, you also need to dig deeper into what comes next. If you are in your 50s, sitting on more than $2 million in your 401(k), and wondering what to do now to make sure this money lasts and works for the retirement you want, you need to read this article!

Let’s start with the question that might be circling in your head right now: Can you retire with $2 million in your 401(k)?  

This is a fair question, especially when you realize that your balance is way above the average for people in their 50s. With the Financial Independence Retire Early (FIRE) movement gaining traction, the thought of leaving your job and heading straight to the beach with a margarita in hand can be tempting. But before you book the ticket, it is important to step back and understand how your $2 million nest egg will actually work for you. Let’s consider some scenarios.

1. You use the 4% rule in retirement.

The 4% rule, a widely suggested and used withdrawal rule, suggests that you can draw 4% of your retirement portfolio in the first year and then adjust that amount for inflation every year after. This rule was designed around the idea of making your money last for about 30 years. With $2 million in a 401(k) at retirement, that would translate to an initial withdrawal of $80,000 per year. 

The 4% rule is based on historical market data, and while it can guide you, it does not always predict the future. Markets will not remain uniform over the years, and inflation, along with rising healthcare costs, may impact the effectiveness of the 4% rule. And let’s not forget that your lifestyle and spending habits may not always fit neatly into a fixed withdrawal plan.

Another consideration is how your money is invested. The original rule assumes that you will keep roughly half your portfolio in stocks and half in bonds or maintain at least a 60/40 allocation.

But what if you are more conservative and hold less in stocks? Or more aggressive and stay heavily invested in equities? Both choices change your risk profile, and by extension, how sustainable your withdrawals will be.

Then there is the question of how long you will actually need your money to last. The rule assumes a 30-year retirement horizon, but what if you retire at 52 or 55 and live into your 90s? That is an almost 40-year stretch, which could put additional pressure on your portfolio. 

There is also data from the Federal Reserve Bank of St. Louis estimating that the average retiree at age 65 spends roughly $60,000 per year. So, if you withdraw 3% of your savings instead of 4%, you would withdraw roughly $60,000 instead of $80,000. This could prolong your savings. But this may seem like a conservative strategy in comparison. 

2. You use the 80% rule.

Another way to think about retirement readiness is with the 80% rule. This guideline says you will likely need about 80% of your pre-retirement income to maintain your lifestyle once you stop working. In retirement, some of your present costs are likely to go down, while others will rise. You might spend less on daily work expenses. But you will probably spend more on healthcare.

So, how does this look with $2 million in retirement at 50? You can start by looking at your current income. If you earn $100,000 a year, then 80% of that would be $80,000 per year in retirement. Now, let’s line this up with the 4% rule. 4% of $2 million equals $80,000 annually, or about $6,667 a month. That lines up almost perfectly with the 80% rule, which suggests that if your pre-retirement income was around $100,000, your savings should be enough to sustain a similar lifestyle in retirement.

Of course, this is not just about numbers on paper. You need to factor in your personal expenses. Housing, transportation, healthcare, food, and utilities are often the biggest categories for retirees. If those essential costs fit comfortably within $80,000 per year, you are in good shape. But if your lifestyle is more expensive because you support other family members financially, or if you live in an area with a high standard of living, you would need to save more. 

Now, what can you do on your end to make sure that your $2 million in 401(k) lasts through retirement

1. Plan your withdrawals well and factor in taxes and penalties

While you may think that you can just start taking money from your 401(k) if you retire in your 50s, that is not the case. Withdrawals from a tax-deferred account like a 401(k) have rules. Two important rules you need to know are the rule of 55 and the Required Minimum Distributions (RMDs). 

Let’s start with the rule of 55. Normally, if you withdraw money from a 401(k) before the age of 59.5, the Internal Revenue Service (IRS) will impose a 10% early withdrawal penalty on top of regular income taxes. But the rule of 55 provides an exception. If you turn 55 during the calendar year you leave or lose your job, you can start taking distributions from your current 401(k) without paying the early withdrawal penalty.

Keep in mind, though, that you will still owe ordinary income taxes on the money you withdraw. The rule only applies to the plan from your most recent employer. So, if you have multiple accounts, you would not be able to withdraw from an old 401(k) from a previous job without potential penalties. You may have an edge over others if you are a public safety employee, such as a police officer or firefighter. Public safety employees can start withdrawals at age 50. So, you could access your funds sooner.

Now, let’s move on to RMDs. Once you reach a certain age, the IRS requires you to start withdrawing a minimum amount from your tax-deferred accounts, like 401(k)s. The current age is 73, as of 2025. RMDs are calculated based on your account balance as of December 31 of the prior year and a distribution period, which is determined from IRS tables based on your age. For example, at age 73, the distribution period is 26.5 years. You can find this table on the IRS website. Failing to take your RMD will lead to a penalty of 25% of the amount you should have withdrawn. If you take the full distribution, the penalty can be reduced to 10%, but it would still be a hassle. If you are still working past 73, you may be able to delay your RMD from your current employer’s 401(k) until April 1 of the year after you retire. However, there are caveats. The exemption applies only to the 401(k) from your current employer, the plan must allow it, and you cannot own more than 5% of the business. 

Now, while you could withdraw early, waiting until the RMD age allows your assets more time to compound, and that too in a tax-deferred manner. But if your tax-deferred account is large, as in the case of a $2 million fund, starting withdrawals before RMD age can help you save tax, as every withdrawal from a 401(k) is treated as ordinary income. So, the more you spread out your withdrawals, the smaller the tax cut. 

The bottom line is that 401(k) withdrawals require some planning. So, make sure you talk to a financial advisor. 

2. Focus on future growth  

Now you can retire with $2 million in your 401(k), but you do not necessarily have to start tapping into it right away. If you can rely on some other savings or income sources for your expenses, letting your 401(k) continue to grow can be a powerful strategy. Over time, your money benefits from compound growth, which can increase your retirement nest egg.

Another significant advantage is that your 401(k) grows tax-deferred. On top of that, the IRS allows you to use catch-up contributions if you are 50 and older, which gives you the chance to save even more. For 2025, the standard contribution limit for 401(k)s is $23,500. Individuals aged 50 or over can make an additional catch-up contribution of $7,500. So, you can contribute a total of $31,000 in a year. Later, between ages 60 and 63, you can contribute up to an additional $11,250 on top of the regular limit. So, you can make a potential maximum contribution of $34,750 in a year in your early 60s.

Recent guidance from the IRS under the SECURE 2.0 Act of 2022 further specifies that catch-up contributions from high-wage earners, essentially employees earning more than $145,000 in the previous year, must now be treated as post-tax Roth contributions. This change may have tax implications and will allow high earners to save aggressively while taking advantage of tax-free growth in the future.

If you keep working through your 50s and maximize these catch-up contributions, you could increase your 401(k) balance before retirement. Going back to the example as discussed above, these additional contributions can help you reach your target faster. Instead of relying solely on investment returns, you would be adding more to your retirement savings each year, taking full advantage of compound growth and tax deferrals. 

3. Speak to a financial advisor  

If you have built a 401(k) balance of $2 million or more, it is clear you have made some smart financial decisions over the years. You are on the right track, but talking to a financial advisor can help make sure you stay on it. An advisor can guide you on withdrawal strategies that minimize taxes and maximize your savings. They can help you plan when to start taking distributions and also suggest ways to optimize your overall tax situation.

Even if you feel confident managing your finances on your own, a financial advisor can still provide a fresh perspective. 

So, can you really retire with $2 million in your 401(k)?

The short answer is yes, but it is not just the number you should be focusing on here. You need to understand the rules around withdrawals from a 401(k) once you reach a certain age. It is also essential to closely examine your pre-retirement expenses and understand what your lifestyle will cost once you stop working. Early withdrawals can come with tax implications and penalties, so knowing your options is important. 

All of this can feel complicated, so speak to a financial advisor. An advisor can help you create a personalized retirement plan, depending on your age. Tools like the Wiser Advisor’s free advisor match tool make it easier to find an advisor near you who understands your goals. Try it out and hire a qualified professional today. 

For additional information on retirement planning strategies tailored to your specific financial needs and goals, please visit Dash Investments or email me directly at dash@dashinvestments.com.

About Dash Investments

Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm that manages private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.

Dash Investments offers a full range of investment advisory and financial services tailored to each client’s unique needs, providing institutional-caliber money management services based on a solid, proven research approach. Additionally, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.

CEO & Chief Investment Officer Jonathan Dash has been profiled by The Wall Street Journal, Barron’s, and CNBC as a leader in the investment industry with a track record of creating value for his firm’s clients.