401(k) balances declined sharply in the third quarter, driven by “some of the worst volatility in recent years,” according to Fidelity.
The Boston-based investment-behemoth’s quarterly look across the 401(k) plans it administers revealed retirement account balances dipped to $84,400 at the end of Q3, down from $91,100 at the end of Q2 and from $89,100 one year ago. IRA balances decreased to $88,700 at the end of Q3, down from $96,300 at the end of Q2 and $92,100 from one year ago.
Fidelity takes a glass-half-full approach to the news, noting changes in the market, whether up or down, “present an opportunity for people to consider a conversion to a Roth 401(k) or Roth IRA.”
“To convert savings from a traditional account to a Roth account, an individual must pay income taxes on the amount being converted,” the company helpfully explains. “A lower account balance with less gains may mean less taxes due. Once converted to a Roth account, the savings would then grow tax-free and any withdrawals made in retirement would not be taxable.”
The vast majority of investors also stayed the course and did not make significant changes to their asset allocation or contribution amount.
- Only 4.9 percent of 401(k) account holders made changes to their asset allocation in Q3, as did less than one in five (16 percent) IRA customers.
- The average total 401(k) contribution amount was $2,610 in Q3, down slightly from $2,770 in Q2 but consistent with $2,670 in Q3 last year.
- The average 401(k) contribution rate was 8.2 percent, up from 8.0 percent a year ago.
- IRA contributions also remained consistent, as IRA account holders contributed an average of $1,260 in Q3, close to the average contribution amount of $1,270 a year ago.
Changes in the market, whether up or down, present an opportunity for people to review their savings and asset allocation strategy, as well as consider a conversion to a Roth 401(k) or Roth IRA. To convert savings from a traditional account to a Roth account, an individual must pay income taxes on the amount being converted. A lower account balance with less gains may mean less taxes due. Once converted to a Roth account, the savings would then grow tax-free and any withdrawals made in
“Recent Fidelity research with the Stanford Center on Longevity found that nearly three out of four pre-retirees cited ‘concern over economic uncertainty’ as a possible reason to continue to work later in life, so we understand that market changes are a big concern for pre-retirees,” Doug Fisher, senior vice president of Fidelity Investments, said in a statement. “Periods of major market volatility, whether up or down, give investors an opportunity to assess their overall financial wellness, which should include a review of their retirement savings and asset allocation, as well as extend to a more basic assessment of their financial health, including overall family spending and budgeting.”