CNN
—
A new analysis from Fidelity Investments, one of the largest providers of 401(k) retirement plans, found that the number of accounts with balances above $1 million increased 9.5% in the third quarter.
In total, of the approximately 24 million 401(k) plan participant accounts for which Fidelity maintains records, 544,000 of them had balances greater than $1 million, up from 497,000 in the second quarter.
The average balance for this group was $1.616 million, compared to $1.595 million in the previous quarter.
Among Generation X — who are next in line for retirees — those who saved for at least 15 years had an average balance of just under $600,000, up 6% from the previous quarter, according to Fidelity data .
And it was found that the average balance of all participants who had saved for five, ten or fifteen years increased during the quarter.
This growth is due not only to market gains, but also to a strong average savings rate of 14.1%, which includes employee contributions (9.4%) and an employer match (4.7%). %).
“We continue to see a commitment to retirement savings, with contributions to these vehicles remaining stable or even increasing,” said Sharon Brovelli, president of workplace investing at Fidelity Investments. “Consistent retirement contributions across different market cycles are important…(since they) will help Americans prepare for a future of financial well-being and security.”
However, for many 401(k) plan participants, their balances are well below $1 million, or even half that.
The average balance across all participant accounts reached a record high, but it was still only $132,300, up 4% from $127,100 in the second quarter. And the median — which represents the level below which half of the accounts had lower balances — was just $30,600.
Of course, these measures are taken into account on the accounts of people of all ages, income levels and length of service, therefore they include small balances of relatively new or young employees, who have not saved in a business plan for a long time; as well as low-income employees, who may not be able to save much, regardless of their age or tenure.
Low-income employees – who tend to be disproportionately minorities – may be among those most likely to cash out their 401(k) savings when changing jobs if their balances are low (e.g., less than $7,000), instead of transferring the money. in their new employer’s plan or in a tax-advantaged IRA.
Collection is expensive in several ways: The distribution will be subject to income tax in the year it is made; and if the person taking the money is under 59-1/2, they will also be hit with a 10% early withdrawal penalty.
And, over time, they will also lose the benefit of tax-deferred growth on that money if they had left it invested uninterrupted.
In its report, Fidelity highlighted the problem. And he noted that 6,000 of the 26,000 401(k)s for which he serves as record keeper now have a self-rollover feature, which provides an automatic rollover service for those with small balances.
This type of functionality may become more common in the coming years. To date, 6% of all plans have already implemented it or will soon, and nearly 26% are considering it, according to the Plan Sponsor Council of America.
Making it easy to transfer small 401(k) balances from one plan to another throughout your career can pay off in the long run.
If self-portability were widely adopted, it could preserve about $1.6 trillion in additional retirement savings over 40 years, including $744 billion for 98 million people who changed jobs, according to the Portability Services Network. a consortium of leading workplace pension record keepers. such as Fidelity, Vanguard, TIAA and Alight as well as Retirement Clearinghouse.
It was created to help “underserved and under-saved workers” improve their retirement outcomes.