Is This the Downside of Record-High 401(k) Contributions?

Contributions to 401(k) plans are breaking new records, and overall balances are at near-record levels. But there is a major thorn in this rosy picture of retirement savings.

Is This the Downside of Record-High 401(k) Contributions? Photo (cc) by GotCredit

The good news is that 401(k) contributions are breaking new records and overall balances are at near-record levels.

The bad news is that loans from 401(k) accounts are also setting new highs.

That’s according to Fidelity Investments‘ latest quarterly analysis of the retirement savings it administers, both 401(k) accounts and individual retirement accounts (IRAs).

Average total balances in 401(k) accounts dipped slightly in the second quarter, to $91,100. But they remain near the record level of $91,800 reported at the end of the first quarter.

Meanwhile, the average 12-month total savings amount for 401(k)s, which includes employee and employer contributions, reached $10,180 at the end of the second quarter of this year. That’s a record high and the first time that figure has surpassed $10,000.

Average total balances in IRA accounts stood at $96,300 at the end of the second quarter. That compares with $94,000 at the end of the first quarter.

The average IRA contribution decreased when compared with the end of the first quarter, although Fidelity attributes that primarily to a significant number of people contributing to their IRA in the first quarter to meet the Internal Revenue Service’s April 15 contribution deadline.

Now for the bad news.

As with 401(k) contribution amounts, 401(k) loan amounts are also on the rise. The average loan amount for the prior 12 months reached $9,720 at the end of the second quarter, up from $9,630 at the end of the last quarter and $9,500 a year ago. Fidelity notes:

While average balances have increased over the past several years, higher savings balances could be contributing to increased loan activity among 401(k) account holders.

Fidelity’s report does not discuss the repercussions of borrowing from 401(k) accounts, but we address the pros and cons periodically here at Money Talks News.

For example, Money Talks News founder Stacy Johnson has explained the downsides of 401(k) loans, as well as times when they might make sense. To learn more, read “Ask Stacy: Should I Borrow From My Retirement Account to Pay Debts?

How do your 401(k) balances compare with the second-quarter averages reported by Fidelity? Let us know what you think of the report’s statistics in our Forums. It’s the place where you can speak your mind, explore topics in-depth, and post questions and get answers.

Karla Bowsher
Karla Bowsher
I’m a freelance journalist and former newspaper reporter who has covered both personal and public finance. I've worked for a top 50 major metro daily and a community newspaper as well as ... More

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