Don't Mess With Taxes

Consistent contributions to tax-advantaged retirement accounts can help them grow from seedlings to a solid and sizeable amount of money for your post-work years. (Photo by micheile henderson on Unsplash)

The stock market has been on a roll, rather than a roller coaster, of late. On Friday, March 1, The Nasdaq recorded its first record close in more than two years. The Dow and S&P 500 are off to their best start to a year since 2019.

That's more good news for investors, particularly those whose holdings are in retirement accounts.

These savers already saw their retirement vehicles achieve their highest balances in nearly two years, according to Fidelity's 2023 Retirement Analysis. The investment firm looked at the savings behaviors and account balances for more than 45 million IRA, workplace 401(k) defined contribution, and 403(b) public or nonprofit workplace retirement accounts.

That examination of these tax-favored accounts found that the average retirement balances for the fourth quarter of 2023 were $116,600 for IRA owners; $118,600 in 401k plans; and $106,100 for those with a 403(b) account.

Average Workplace Retirement Plan Balances

Beyond those retirement plan account averages, Fidelity's study found that the number of 401(k) millionaires in last year's last quarter increased by 20 percent.

Contribution rates rose, too: It's not just improved market conditions that have contributed to the surge in retirement wealth. Fidelity said consistent contributions have helping boost average account balances to their current highs.

In the fourth quarter of 2023, 10 percent of employees increased the contribution rate to their company 401(k)s. For the full year, 37.2 percent bumped up how much they put into the workplace plans.

The hikes were intentional, not automatic.

Fidelity says that 48 percent of individuals proactively increased their contribution rate in 4Q 2023, rather than relying on auto increases. That end-of-year action outpaced all of last year, when 27 percent proactively increased their retirement contribution rate.

The attention to the contribution rate also underscores the participants' commitment to putting in enough of their own money to get their employers' matching contribution.

Other highlights from the report —

• Gen Z Roth IRA accounts increased 50 percent in Q4 2023 compared to Q4 2022, with average contributions increasing 1.1 percent.
• IRA accounts owned by Gen Z women increased by 59 percent over the last year.
• The average balance for Gen X workers in their 401(k) plan for 15 years straight topped half a million dollars ($501,000) at year end 2023.

Still time to add to IRAs: While the 2023 tax year closed on workplace plans after Dec. 31 hit midnight, IRA owners still have time to max out last year's contributions to those accounts.

You can contribute to your IRA, Roth or traditional, up through the next year's Tax Day. That's April 15 this year. And 4/15 is this weekend's By the Numbers figure.

But there are a couple of more amounts to note before closing.

If you haven't contributed the full $6,500 to your IRA allowed for tax year 2023, do so in the next six weeks or so. If you're age 50 or older, you can add another $1,000 to help you catch up on your savings.

Then you can start stashing money for 2024. Inflation adjustments bump this year's contribution maximum to $7,000 for younger IRA owners, and $8,000 for those old enough to make catchup contributions.

Get a jump on workplace contributions: You also might want to look at your workplace retirement plan. You don't have to wait until the end of the year to increase your contributions.

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the TSP is $23,000 for the 2024 tax year. The workplace plan catch-up contribution limit this year for employees aged 50 or older and who participate in these plans is another $7,500.

The sooner you start putting more money into your company-sponsored retirement plan, it will give the power of compounding more time to help you join the 401(k) millionaire ranks.

You also might find these items of interest:

• Tax-favored retirement savings get cost-of-living 2024 boost
• New automatic 401(k) enrollment rule can help workers reach retirement goals
• October extension deadline also is due date for some self-employed retirement account contributions

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