The number of retirement savers sitting on a million bucks or more in their 401(k)s, 403(b)s, or IRAs lifted off last year.
The band of 401(k)-created millionaires jumped by 27% in 2024, increasing from 422,000 to 537,000, while the number of IRA-created millionaires bumped up 8% over the year from 318,863 to 344,413, according to a new analysis by Fidelity Investments.
The average 401(k) balance of $131,700 at the end of 2024 ranks as the second-highest average on record for the firm and is an 11% increase from the start of 2024. The average IRA balance was $127,534, up 8% for the year.
Gen X savers had the most bulging balances — average account balances were up 18% from a year ago, $508,000 vs. $589,400. For those Gen Z savers who held their 401(k) for five years, accounts popped to an average of $52,900 — an increase of 66% over the past year.
“Retirement savers experienced positive growth in 2024, which means that the number of individuals who have a million dollars or more in their retirement savings also increased,” Michael Shamrell, vice president of Workplace Thought Leadership at Fidelity Investments, told Yahoo Finance.
The driver: A robust economy, lower inflation, and the Federal Reserve’s interest-rate cuts totalling one percentage point.
The S&P 500 (^GSPC) ended the year with a gain of 23%. The Dow Jones Industrial Average (^DJI) jumped nearly 13%, and the Nasdaq (^IXIC) ballooned close to 29%.
Here’s how 401(k)-created millionaires break down by generation: More than 4 in 10 are boomers: 41%, Gen X: 57%, and millennials: 2%. “Boomers have already started drawing from their retirement savings, which is why the number is lower than Gen X at this point,” Shamrell said.
One thing of note: “More millennial savers than ever before are now using Roth 401(k)s, removing the burden that taxes could pose on their savings when they enter retirement and begin to draw from their nest egg,” Shamrell said. “The millennial generation is making smart investment decisions now that they know will benefit them even further 20 or 30 years down the road when they ultimately enter retirement.”
Fidelity’s analysis covers more than 50 million IRA, 401(k), and 403(b) retirement accounts.
Retirement saving is a long-term game.
“The important thing to keep in mind when it comes to 401(k)-created millionaires is that these individuals have been saving for a long time,” Shamrell said. “The average 401(k)-created millionaire has been in their plan for 26 years and has an average contribution rate of almost 18%.”
Regular contributions are key because you’re consistently and continuously adding funds to your accounts regardless of market gyrations. That discipline has a snowballing impact, which is the spine of wealth-building.
The average 401(k)-created millionaire has been in their plan for 26 years and has an average contribution rate of almost 18%, per Fidelity. (Getty Creative) ·Kamon Supasawat via Getty Images
How much you set aside each year is a factor that’s in your control. Total average 401(k) savings rates ticked to 14.1%, according to Fidelity’s data, up slightly from a year ago. That rate is a combo of employee and employer 401(k) contributions of 9.4% and 4.7%, respectively. While that’s decent, it’s still below the 15% of pre-tax income each year, including any match, most financial advisers recommend.
Taking money out early from a retirement account is rarely advisable, but it’s sometimes a necessary last resort when money gets tight or an emergency hits.
Bank of America compiled data which found that, compared to the third quarter, fewer participants borrowed from their retirement accounts, 2.2% vs. 2.5%, and loan amounts were smaller. The average loan per participant was $8,950, down slightly from $9,100.
And the percentage of loans in default dropped from 12.6% a year ago to 11.1%.
According to the Bank of America survey, the average worker hardship withdrawal from a 401(k) plan was $5,730, roughly the same as a year ago.
Withdrawals should be a last resource for savers. The biggest hit is that you forfeit future retirement savings, but you could also be nicked with taxes and penalties.
A withdrawal from your 401(k) account is usually taxed as ordinary income. Also, you’ll pay a 10% early withdrawal penalty before age 59½, unless you meet one of the IRS exceptions. These include certain medical expenses, qualified tuition payments, and up to $10,000 for first-time homebuyers. Some employer plans, too, will allow a non-hardship withdrawal.
A loan is a better option if you need the money because you pay yourself back, typically within five years, with interest — the loan payments and interest go back into your account.
One caveat: If you part ways with your employer, you might have to repay your loan in full. When you can’t repay the loan, it’s considered defaulted, and you’ll owe both taxes and a 10% penalty if you’re under 59 ½.
Most workers tap their health savings accounts to pay for current medical bills foregoing investing contributions. (Getty Creative) ·Tetra Images via Getty Images
I recently wrote about another pathway to a cool million in retirement: a health savings account.
If you start early, contribute the maximum pretax contribution annually, add in any catch-up contributions, and let it ride for four decades without tapping it to cover healthcare expenses, you have a shot at doing just that, according to a new analysis by the nonpartisan Employee Benefit Research Institute (EBRI). Families can save nearly twice as much.
“The study is all about the potential,” Paul Fronstin, director of health benefits research at EBRI and an author of the report, told Yahoo Finance. “Under the best possible circumstances.”
The problem is many HSA account holders don’t invest their HSA savings. Only about 3.2 million health savings accounts have at least a portion of their HSA dollars invested, according to HSA advisory firm Devenir. Most park the money in cash, depriving themselves of the account’s key advantages.
Per Bank of America’s survey, there is a dollop of good news here. About 4 in 10 participants contributed more than they withdrew from their health savings account. The average HSA account balance at year-end was $5,000, up year over year from $4,400, according to the report.
Here’s the niggle: Only 14% of account holders invested their HSA for future growth, although up from 12% a year ago, many employees are not taking advantage of HSA’s investing potential, according to the report.
Lisa Margeson, managing director of Retirement Research & Insights at Bank of America, told Yahoo Finance, there’s clearly “a lot of room for improvement.”
“It’s important that employees understand the benefits of an HSA — from its triple-tax advantage to its ability to grow over time — so they can be well prepared for healthcare costs in retirement, a cost employees tend to underestimate.”
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