What 401(k) mil­lion­aires do Sav­ings rates go­ing up for ac­counts

Daily Press (Sunday) - - Success - By San­dra Block

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 per­cent 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 per­cent 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 per­cent.

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 per­cent, up from 12.5 per­cent in 2008.

The 401(k) mil­lion­aires save even more, says Mur­phy. The av­er­age sav­ings rate for those work­ers is 17 per­cent, and some mil­lion­aires save up to 25 per­cent, she says. Other char­ac­ter­is­tics of 401(k) mil­lion­aires:

1. 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.

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

3. 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 if you hadn't taken out a loan.

San­dra Block is a se­nior ed­i­tor at Ki­plinger’s Per­sonal Fi­nance mag­a­zine. Send your ques­tions and com­ments to mon­ey­power@kipling er.com. ELVECTOR/DREAMSTIME

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