Gen Z Retirement Success

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Fidelity Investments reports that Gen Z is making significant strides towards retirement success. In the fourth quarter of 2023, Roth individual retirement accounts opened by Gen Z members saw a staggering 50% year-over-year growth.

Healthy Growth Across Generations

Fidelity’s retirement analysis for the fourth quarter of 2023 revealed positive trends across various generations. Average account balances reached their highest levels in almost two years.

Roth IRAs: A Tool for Young Workers

Roth IRAs present a compelling opportunity for young employees due to their lower tax bracket compared to older workers. With post-tax contributions, individuals pay taxes upfront and enjoy tax-free withdrawals during retirement. This stands in contrast to traditional retirement accounts, where contributions are untaxed initially but taxed upon withdrawal.

Maximizing Retirement Savings

While Roth IRAs can function as a primary retirement account for workers lacking access to a 401(k), they also complement existing 401(k) plans. It’s essential to note that individuals have until April 15th to make retroactive contributions for the previous year, whether to a Roth or traditional IRA.

The Rise of 401(k) Millionaires

In the fourth quarter of last year, there was a notable surge in the number of 401(k) millionaires, with a 20% increase compared to the previous quarter. Despite an autumn stock market pullback, Fidelity reported significant growth in this group.

GenXers Surpass Half a Million Dollars in 401(k) Balance

GenXers who diligently contributed to their 401(k) plans for 15 consecutive years saw their average balance reaching an impressive $501,000 by the end of 2023.

Market Conditions and Contribution Rates Drive Growth

The rise in 401(k) balances can be attributed to the favorable market conditions, with the S&P 500 climbing by 11.2% in the last quarter. Additionally, a majority of savers maximized their company matching contributions, reflecting a healthy overall contribution rate.

Retirement Saving Habits Remain Strong

Remarkably, retirees continued to let their savings grow, with only a small percentage making withdrawals. Notably, only 20% of retirees aged 70 to 72 accessed their 401(k) funds in 2023, in contrast to 94% of those aged 73 and above.

Secure 2.0 Act Impacts RMDs

The Secure 2.0 Act, implemented in 2022, raised the age for required minimum distributions to 73. This change means that older adults must start withdrawing a minimum amount from their traditional retirement accounts and pay income taxes on it once they reach 73.

Data Insights from Fidelity

Fidelity’s analysis, based on data from millions of retirement accounts, provides valuable insights into the evolving landscape of retirement savings.

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