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Secrets of the 401(k) Millionaires


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The number of 401(k) accounts with a balance of $1 million or more rose to a record 168,000 in the second quarter, an increase of 41% from a year earlier, according to Fidelity Investments, the nation's largest plan administrator. Although that's only a small percentage of 401(k) participants, there were other positive developments. The average 401(k) account balance rose 6% from a year earlier, to $104,000, and the average balance in individual retirement plans, which allow workers to save even if they don't have a workplace plan, rose to $106,900, up nearly 7%.

See Also: Wealth-Building Secrets of the Millionaires Next Door

The bull market contributed to the growth, but it wasn't the only factor, says Meghan Murphy, a vice president at Fidelity Investments. Contributions are up, too. The average savings rate, which includes employee savings and company matching funds, was recently 13%, up from 12.5% in 2008. The 401(k) millionaires save even more, says Murphy. The average savings rate for those workers is 17%, and some millionaires save up to 25%, she says. Other characteristics of 401(k) millionaires:

They're in it for the long haul. Most 401(k) millionaires have been contributing to their plans for 28 to 30 years, even if they've changed jobs.

They're big on stocks. The 401(k) millionaires typically have 75% to 80% of their savings in stocks, Murphy says. Stocks have historically outperformed other types of investments.

They avoid taking out loans. While most companies allow workers to borrow from their 401(k) plans, loans can put a serious dent in your nest egg. Many plans bar workers from contributing to their accounts until they have repaid the loan. If you leave your job, you're usually required to pay off the balance in as little as 60 days; otherwise, it will be treated as a taxable withdrawal. The money you borrow isn't invested, which means your account won't grow as much as it would have if you hadn't taken out a loan. Fidelity says 20.5% of plan participants had an outstanding loan in the second quarter, compared with a high of 23% in the third quarter of 2013.

See Also: Already Contributing to Your 401(k) ... Here's How to Optimize It

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Personal Finance , Retirement



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