Kiplinger’s Personal Finance: Secrets of 401(k) millionaires

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, said 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, Murphy said. 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:

  • 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 percent to 80 percent of their savings in stocks, Murphy said. 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 percent of plan participants had an outstanding loan in the second quarter, compared with a high of 23 percent in the third quarter of 2013.

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