There are more 401(k) and IRA millionaires than ever

The ranks of 401(k) and IRA millionaires are exploding.

The number of 401(k) accounts with balances of at least $1 million at Fidelity Investments grew 84% year over year to 412,000, while the number of seven-figure IRAs jumped more than 64% to 341,600, Fidelity said. Together, the number of accounts with $1 million or more grew 74.5% — though it isn’t clear how many individuals that represents, because people can have multiple accounts.

It’s a small percentage of the tens of millions of IRA, 401(k) and 403(b) retirement savings accounts at the massive fund manager — and the $1 million bar is a far cry from the $5 billion that tech investor Peter Thiel reportedly held in a tax-free Roth individual retirement account.

The gains were in large part driven by the run-up in the market: The S&P 500 rose 38.6% in that time frame, while the Nasdaq Composite jumped 44.2%.

Victor J. Blue/Bloomberg

Non-millionaires also had good reason to check their account balances. The average 401(k) held $129,300 at the end of the second quarter of 2021, up 24% from a year ago; the average IRA was $139,000, a 21% gain compared to a year ago.

Still, saving for retirement is a luxury many Americans can’t afford. The Washington Center for Equitable Growth cites Federal Reserve data showing that some two-thirds of Hispanic families and about half of Black families don’t have a retirement plan. Among White families, about 25% don’t have a retirement plan, and for high-income families, only one-10th lack one. Many Americans rely solely on Social Security benefits in their old age.

There is some progress toward better balance among 401(k) savers on the gender front, although the gap is still huge. At plans where Fidelity knows the gender of plan participants, the percentage of women with balances of $1 million or more was 25% in the second quarter, for a total of 89,000, and had increased for five consecutive quarters. Ten years ago, that figure was 14%.

Those who can afford to save are kicking it up a notch. The data showed that Baby Boomers, of which the youngest is 57, moved to top up tax-advantaged savings, with a record 18.2% making a so-called “catch-up” contribution in the second quarter. Unsurprisingly, since they’ve owned 401(k)s for longer, Boomers make up a lot of the 401(k) millionaires — the average age is 58, Fidelity said. Plan participants age 50 and older are allowed to make extra contributions of as much as $6,500 on top of the $19,500 annual limit.

Some 401(k) balances are well above $1 million. The average balance among 401(k) millionaires is $1.5 million, a Fidelity spokesman said, and the median balance is $1.33 million. At the 90th percentile the balance is $2.23 million. The company wouldn’t say what the balance was at the 99th percentile.

While a million in a tax-advantaged retirement account is a lot, it pales next to the $5 billion that ProPublica recently reported that Peter Thiel, co-founder of PayPal Holdings Inc., amassed in a Roth IRA, citing confidential Internal Revenue Service information. Once a Roth IRA is funded with after-tax money, or, in Thiel’s case, with shares of private Pay Pal stock valued at $0.0001 per share in 1999, when he put them in a Roth IRA, it grows tax-free.

In response to the ProPublica article, Senator Ron Wyden said he would revisit his 2016 proposal to stop people from being able to contribute to Roth IRAs once the balance reaches $5 million. “IRAs were designed to provide retirement security to middle-class families, not allow mega-millionaires and billionaires to avoid paying taxes,” Wyden said in a June 24 statement.

Overall, the average savings rate in 401(k)s for the second quarter was a record 9.3%, and 38% of plan participants hiked their savings rate over the past year, while 7% lowered it.

Employees with long tenure at their companies tend to have the highest retirement savings balances. The average balance for employees who had been in their company plan for 10 years breached the $400,000 level for the first time in 2021’s second quarter, rising to $402,700.