A growing number of retirement savers have $1 million or more in their IRAs or 401(k)s.
The number of Fidelity IRA account holders with at least $1 million in savings rose to 398,594 at the end of June, up from 376,275 at the end of the first quarter, according to Fidelity Investments.
That increase of nearly 6 percent is significant. It’s more than double the increase seen among people with seven-figure balances in Fidelity’s 401(k) plans.
At the end of the second quarter, there were 497,000 millionaire savers in Fidelity’s 401(k) plans, up from 485,000 at the end of March, an increase of 2.5%.
The swollen retirement account balances were fueled by another strong quarter of market returns and steady contributions, Rita Assaf, Fidelity’s vice president of retirement products, told Yahoo Finance.
Savers were able to reach this high level by starting early and contributing regularly over many years, she said.
For example, the average total 401(k) savings rate remained flat from the start of the year at 14.2%, a combination of employee and employer 401(k) contributions.
The increase in IRA balances is notable, however, because this is money that people are saving and investing on their own, without the help of employer matching funds.
Learn more: Here Are the New Limits for Traditional IRAs and Roth IRAs in 2024
Saving money yourself, not necessarily by choice
About 1 in 6 workers have no retirement benefits, with the percentage significantly higher among Generation Z (20%) and baby boomers (30%), according to a recent report from the Transamerica Center for Retirement Studies.
“This is a real concern and it requires a ‘do it yourself’ approach to saving and investing for retirement,” Catherine Collinson, CEO and president of the Transamerica Institute, told Yahoo Finance. “Without an employer and an employer-sponsored retirement plan, it’s easy to do nothing,” she said.
You can open one of these retirement accounts through your local credit union or bank. Mutual fund companies and brokerage firms are also good places to do this. An IRA is easy to set up online: enter your bank account information, how often you want to invest, and how much you want to transfer to your IRA.
Some states also offer IRA programs open to self-employed individuals. These include Oregon, Colorado, Connecticut, Maryland, Illinois, California, and Virginia.
At Fidelity, 12.3 million people are saving and investing for retirement through 15.8 million IRAs, where the number of accounts increased 11.7% and total assets jumped 22.2% between the second quarter of 2023 and the second quarter of this year.
Learn more: Retirement Planning: A Step-by-Step Guide
Do you have a question about retirement? Your personal finances? Your career? Click here to send a message to Kerry Hannon.
The New IRA Millionaires
The average age of a millionaire created with an IRA is 68, compared to 59 for a millionaire created with a 401(k), Assaf said.
Yet many Fidelity IRA millionaires are Gen Xers reaching their peak earning years. Some are even surpassing baby boomers, she added.
According to the analysis, Gen Xers saw a 30% increase in their total IRA contributions over the past year, with their current contributions being the highest in five years.
IRA investors can opt for a traditional IRA to get an immediate tax break. Contributions to traditional IRAs are often tax-deductible, but withdrawals made years later in retirement are taxed at the same rates as ordinary income, such as wages.
Another choice is a Roth IRA, which offers no deductions today, but when you withdraw the funds, the withdrawals are tax-free.
Eligibility to contribute to a Roth IRA is based on your income. For tax year 2024, the limits are between $146,000 and $161,000 for single taxpayers and between $230,000 and $240,000 for joint taxpayers.
For 2024, the total you can contribute to all your traditional IRAs and Roth IRAs cannot exceed $7,000, or $8,000 if you are 50 or older.
If you’re self-employed, you can also set aside more of your income by contributing to a simplified employee retirement plan, or SEP IRA. The contribution limit for a SEP IRA for 2024 is 25% of your earnings or $69,000, whichever is less.
The majority of millionaires’ total IRA balances are held in traditional IRAs, Assaf said. The reason: People are converting workplace retirement plans like 401(k)s into IRAs.
The importance of contributing
While not all account holders contribute to their IRA on an annual basis, the number of Fidelity IRA accounts with a contribution increased 31% between the second quarter of 2023 and the second quarter of this year.
Regular contributions are important because they allow you to add funds to your accounts regularly, whether the market is up or down. This has a cumulative impact that is essential to building wealth.
The average savings period for millionaires with Fidelity accounts is more than two decades. That means it pays to stick with it and invest regularly over the long term.
“The key to saving for retirement is to focus on the long term and maintain consistent contributions over time,” Michael Shamrell, vice president of thought leadership at Fidelity Workplace Investing, told Yahoo Finance. “The majority of these savers aren’t doing anything special, other than saving at a high rate in the same plan over a long period of time.”
Roth IRAs are the retirement savings vehicle of choice for all generations, with 65% of new IRA contributions going to Roths. Roth IRAs among Gen Z investors (born 1997-2012) have increased 66% in the past year.
“What we see is that IRA millionaires represent a combination of workplace savings (rollover) or asset transfer (think transferring an IRA from another provider), as well as people who simply continue to contribute and make sure they invest so their money grows,” Assaf added.
I share this sentiment. Ultimately, it is up to you to invest in your future and do it seriously.
Kerry Hannon is a senior columnist at Yahoo Finance. She is a career and retirement strategist and the author of 14 books, including ““Being in Control at 50+: How to Succeed in the New World of Work” and “It’s never too late to get rich.” Follow her on X @kerryhannon.
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