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Yahoo
6 days ago
- Business
- Yahoo
Here's the Vanguard 401(k) Participation Rates by Income Level, According to a New Report. How Do You Measure Up to Your Peers?
Key Points 401(k) participation rates increase with higher income levels. There are significant downsides to not contributing to such plans. Even putting a little bit into one can make a difference down the line. The $23,760 Social Security bonus most retirees completely overlook › The 401(k) is perhaps the most popular defined contribution plan available. It comes with a host of benefits, including employer match, competitive contribution limits compared to other plans, and rollover options for workers switching jobs, among others. It's no wonder that millions of people rely on them to save for retirement. However, participation rates vary by income level. A recent report from Vanguard, a leading investment advisory company, sheds more light on this fact and can help you get a sense of what your peers are doing, which could, in turn, help guide your retirement planning strategy. Let's examine what this report says. Higher income equals higher participation rates Vanguard releases its "How America Saves" report annually. It examines the financial trends and habits of nearly 5 million of its clients, many of whom are enrolled in defined contribution plans, such as 401(k) plans. They aren't necessarily representative of the rest of the population. That said, Vanguard's data shows what many people are doing with their money, and, among other things, whether they are opting for defined contribution plans. A nifty feature of the report is that it breaks down participation rates in defined contribution plans by demographics, allowing you to compare yourself with your peers. Vanguard released the latest iteration of this report this year, using numbers (actual and estimated) from 2024. And it reveals that those with higher incomes are more likely to have a 401(k). Here is a breakdown of participation rate by income level, based on Vanguard's data. Income Level Participation Rate Less than $15,000 31% $15,000 to $29,999 49% $30,000 to $49,999 74% $50,000 to $74,999 86% $75,000 to $99,999 88% $100,000 to $149,999 90% $150,000 and up 95% Data source: Vanguard Group. What to do if you aren't saving for retirement It probably comes as no surprise to you that people with higher incomes -- who have more to spend and to save -- are more likely to be putting money into retirement accounts. If you are among these higher earners and are regularly setting money aside, for a 401(k) or another plan, keep at it! But what about those who aren't? Of course, any single person's highly specific set of circumstances gets lost in the data. There may be a good reason why you aren't putting money into a 401(k) that applies to you and you only. For those who aren't doing so because they believe they don't have the funds, that's understandable. However, it's essential to keep a few things in mind. First, any amount you put into your 401(k) and that is invested in productive assets, like stocks, will be growing while you sleep. By not saving money, you are missing out on years of potential returns. Time is your best friend on the stock market. Money invested in ETFs that track major market indexes is bound to generate strong returns over the long run. And with many online brokers now offering fractional shares, you can invest in top stocks or ETFs even with $1, regardless of their actual share prices. Suppose you are 35 and decide to save $1 every day and invest $365 at the beginning of every following year for 30 years. With an 8% annual return -- a reasonable estimate of the stock market's long-term performance -- you'd have $48,329.11. That's not enough to retire on, but it's a lot better than nothing. And employer matching is one of the best features of a 401(k). By not participating, you are essentially forgoing free money and years of returns on that free money. Let's do the same exercise as above, but this time with employer matching, assuming that for every dollar you put into your 401(k), you receive the same amount up to a certain percentage of your salary. So, you'd be investing $730 at the beginning of every year for 30 years. That would amount to $96.658.22 with the same annual return once all is said is done. Again, probably not enough for most Americans to live on in retirement, but it's better than nothing. Here's the point of this exercise. Though it may be hard to set money aside for retirement because of your finances, every little bit you save helps, especially when you take employer matching and stock market returns into account. Creating a budget, if you don't already have one, can help you set aside any amount of money you can for a 401(k). Budgeting can also help those with higher incomes who feel they should be setting aside money for retirement but aren't doing so. Here's the bottom line. Saving for a retirement that is years, perhaps even decades, away may seem like an expensive proposition. But it might be even more costly not to do it. The $23,760 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Here's the Vanguard 401(k) Participation Rates by Income Level, According to a New Report. How Do You Measure Up to Your Peers? was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Business Mayor
02-05-2025
- Business
- Business Mayor
There's a new 'super funding' limit for some 401(k) savers in 2025. Here's who qualifies
Richvintage | E+ | Getty Images If you're an older investor and eager to save more for retirement, there's a big 401(k) change for 2025 that could help boost your portfolio, experts say. Americans expect they will need $1.26 million to retire comfortably, and more than half expect to outlive their savings, according to a Northwestern Mutual survey, which polled more than 4,600 adults in January. But starting this year, some older workers can leverage a 401(k) 'super funding' opportunity to help them catch up, Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, previously told CNBC. Here's a look at other stories impacting the financial advisor business. Here's what investors need to know about this new 401(k) feature for 2025. Higher 'catch-up contributions' For 2025, you can defer up to $23,500 into your 401(k), plus an extra $7,500 if you're age 50 and older, known as 'catch-up contributions.' Thanks to Secure 2.0, the 401(k) catch-up limit has jumped to $11,250 for workers age 60 to 63 in 2025. That brings the max deferral limit to $34,750 for these investors. Here's the 2025 catch-up limit by age: 50-59: $7,500 60-63: $11,250 64-plus: $7,500 However, 3% of retirement plans haven't added the feature for 2025, according to Fidelity data. For those plans, catch-up contributions will automatically stop once deferrals reach $7,500, the company told CNBC. Of course, many workers can't afford to max out 401(k) employee deferrals or make catch-up contributions, experts say. For plans offering catch-up contributions, only 15% of employees participated in 2023, according to the latest data from Vanguard's How America Saves report. 'A great tool in the toolbox' The higher 401(k) catch-up is 'a great tool in the toolbox,' especially for higher earners looking for a tax deduction, said Dan Galli, a CFP and owner of Daniel J. Galli & Associates in Norwell, Massachusetts. While pretax 401(k) contributions offer an up-front tax break, you'll owe regular income taxes on withdrawals, depending on your future tax bracket. However, your eligibility for higher 401(k) catch-up contributions hinges what age you'll be on Dec. 31, Galli explained. For example, if you're age 59 early in 2025 and turn 60 in December, you can make the catch-up, he said. Conversely, you can't make the contribution if you're 63 now and will be 64 by year-end. On top of 401(k) catch-up contributions, big savers could also consider after-tax deferrals, which is another lesser-known feature. But only 22% of employer plans offered the feature in 2023, according to the Vanguard report. READ SOURCE
CNBC
02-05-2025
- Business
- CNBC
There's a new 'super funding' limit for some 401(k) savers in 2025. Here's who qualifies
If you're an older investor and eager to save more for retirement, there's a big 401(k) change for 2025 that could help boost your portfolio, experts say. Americans expect they will need $1.26 million to retire comfortably, and more than half expect to outlive their savings, according to a Northwestern Mutual survey, which polled more than 4,600 adults in January. But starting this year, some older workers can leverage a 401(k) "super funding" opportunity to help them catch up, Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, previously told CNBC. Here's a look at other stories impacting the financial advisor business. Here's what investors need to know about this new 401(k) feature for 2025. For 2025, you can defer up to $23,500 into your 401(k), plus an extra $7,500 if you're age 50 and older, known as "catch-up contributions." Thanks to Secure 2.0, the 401(k) catch-up limit has jumped to $11,250 for workers age 60 to 63 in 2025. That brings the max deferral limit to $34,750 for these investors. However, 3% of retirement plans haven't added the feature for 2025, according to Fidelity data. For those plans, catch-up contributions will automatically stop once deferrals reach $7,500, the company told CNBC. Of course, many workers can't afford to max out 401(k) employee deferrals or make catch-up contributions, experts say. For plans offering catch-up contributions, only 15% of employees participated in 2023, according to the latest data from Vanguard's How America Saves report. The higher 401(k) catch-up is "a great tool in the toolbox," especially for higher earners looking for a tax deduction, said Dan Galli, a CFP and owner of Daniel J. Galli & Associates in Norwell, Massachusetts. While pretax 401(k) contributions offer an up-front tax break, you'll owe regular income taxes on withdrawals, depending on your future tax bracket. However, your eligibility for higher 401(k) catch-up contributions hinges what age you'll be on Dec. 31, Galli explained. For example, if you're age 59 early in 2025 and turn 60 in December, you can make the catch-up, he said. Conversely, you can't make the contribution if you're 63 now and will be 64 by year-end. On top of 401(k) catch-up contributions, big savers could also consider after-tax deferrals, which is another lesser-known feature. But only 22% of employer plans offered the feature in 2023, according to the Vanguard report.
Business Mayor
01-05-2025
- Business
- Business Mayor
This lesser-known 401(k) feature can kick-start your tax-free retirement savings
Don Mason | The Image Bank | Getty Images If you're eager to increase your retirement savings, a lesser-known 401(k) feature could significantly boost your nest egg, financial advisors say. For 2025, you can defer up to $23,500 into your 401(k), plus an extra $7,500 in 'catch-up contributions' if you're age 50 and older. That catch-up contribution jumps to $11,250 for investors age 60 to 63. Some plans offer after-tax 401(k) contributions on top of those caps. For 2025, the max 401(k) limit is $70,000, which includes employee deferrals, after-tax contributions, company matches, profit-sharing and other deposits. If you can afford to do this, 'it's an amazing outcome,' said certified financial planner Dan Galli, owner of Daniel J. Galli & Associates in Norwell, Massachusetts. Here's a look at other stories impacting the financial advisor business. 'Sometimes, people don't believe it's real,' he said, because you can automatically contribute and then convert the funds to 'turn it into tax-free income.' However, many plans still don't offer the feature. In 2023, only 22% of employer plans offered after-tax 401(k) contributions, according to the latest data from Vanguard's How America Saves report. It's most common in larger plans. Even when it's available, employee participation remains low. Only 9% of investors with access leveraged the feature in 2023, the same Vanguard report found. That's down slightly from 10% in 2022. How to start tax-free growth After-tax and Roth contributions both begin with after-tax 401(k) deposits. But there's a key difference: the taxes on future growth. Roth money grows tax-free, which means future withdrawals aren't subject to taxes. To compare, after-tax deposits grow tax-deferred, meaning your returns incur regular income taxes when withdrawn. That's why it's important to convert after-tax funds to Roth periodically, experts say. 'The longer you leave those after-tax dollars in there, the more tax liability there will be,' Galli said. But the conversion process is 'unique to each plan.' Often, you'll need to request the transfer, which could be limited to monthly or quarterly transactions, whereas the best plans convert to Roth automatically, he said. Focus on regular 401(k) deferrals first Before making after-tax 401(k) contributions, you should focus on maxing out regular pre-tax or Roth 401(k) deferrals to capture your employer match, said CFP Ashton Lawrence at Mariner Wealth Advisors in Greenville, South Carolina. After that, cash flow permitting, you could 'start filling up the after-tax bucket,' depending on your goals, he said. 'In my opinion, every dollar needs to find a home.' In 2023, only 14% of employees maxed out their 401(k) plan, according to the Vanguard report. For plans offering catch-up contributions, only 15% of employees participated.
CNBC
01-05-2025
- Business
- CNBC
This lesser-known 401(k) feature can kickstart your tax-free retirement savings
If you're eager to increase your retirement savings, a lesser-known 401(k) feature could significantly boost your nest egg, financial advisors say. For 2025, you can defer up to $23,500 into your 401(k), plus an extra $7,500 in "catch-up contributions" if you're age 50 and older. That catch-up contribution jumps to $11,250 for investors age 60 to 63. Some plans offer after-tax 401(k) contributions on top of those caps. For 2025, the max 401(k) limit is $70,000, which includes employee deferrals, after-tax contributions, company matches, profit sharing and other deposits. If you can afford to do this, "it's an amazing outcome," said certified financial planner Dan Galli, owner of Daniel J. Galli & Associates in Norwell, Massachusetts. Here's a look at other stories impacting the financial advisor business. "Sometimes, people don't believe it's real," he said, because you can automatically contribute and then convert the funds to "turn it into tax-free income." However, many plans still don't offer the feature. In 2023, only 22% of employer plans offered after-tax 401(k) contributions, according to the latest data from Vanguard's How America Saves report. It's most common in larger plans. Even when it's available, employee participation remains low. Only 9% of investors with access leveraged the feature in 2023, the same Vanguard report found. That's down slightly from 10% in 2022. After-tax and Roth contributions both begin with after-tax 401(k) deposits. But there's a key difference: The taxes on future growth. Roth money grows tax-free, which means future withdrawals aren't subject to taxes. To compare, after-tax deposits grow tax-deferred, meaning your returns incur regular income taxes when withdrawn. That's why it's important to convert after-tax funds to Roth periodically, experts say. "The longer you leave those after-tax dollars in there, the more tax liability there will be," Galli said. But the conversion process is "unique to each plan." Often, you'll need to request the transfer, which could be limited to monthly or quarterly transactions, whereas the best plans convert to Roth automatically, he said. Before making after-tax 401(k) contributions, you should focus on maxing out regular pre-tax or Roth 401(k) deferrals to capture your employer match, said CFP Ashton Lawrence at Mariner Wealth Advisors in Greenville, South Carolina. After that, cash flow permitting, you could "start filling up the after-tax bucket," depending on your goals, he said. "In my opinion, every dollar needs to find a home." In 2023, only 14% of employees maxed out their 401(k) plan, according to the Vanguard report. For plans offering catch-up contributions, only 15% of employees participated.
