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401(k) rules just got better. Here are the important changes
01:54 - Source: CNN Business
New York CNN  — 

The second quarter of this year was a good one for retirement savers, according to a new analysis from Fidelity Investments.

Thanks to continued employee and employer contributions, coupled with an improving market, 401(k) balances rose on average for all age groups not just in the second quarter, but compared to the same period a year earlier.

Here are some hard numbers based on the accounts housed at Fidelity, one of the largest providers of workplace retirement plans, with more than 23 million 401(k) participants.

Overall the average 401(k) balance rose to $112,400, up 4% from the first quarter. This is the third straight quarter in which the average balance grew. And compared to a decade ago, the average balance is 39% higher.

In tracking savings growth over the past year, Fidelity found that the average 401(k) account for Baby Boomers rose 6.3%. Millions of Boomers, of course, will be retiring over the next several years. And those who have been saving continuously since 2008 now have an average balance of $499,000. That’s well above the second quarter average — $220,900 — for everyone in that age group.

Younger workers, meanwhile, saw double-digit percentage increases in their balances over the past year: 14.5% for Gen Xers to $153,300; 24.5% for Millennials to $48,300; and 66% for Gen Z workers to $8,100.

Regardless of generation, people who have been saving consistently over the past 5, 10 and 15 years saw double-digit percentage increases as well, according to Fidelity.

The “saving consistently” part really makes a big difference when you’re building a nest egg, but so too does the level of contributions made to your account. In the second quarter, Fidelity found that total contribution rates — the employee’s savings plus their employer matches — averaged 13.9% of one’s gross income. That is roughly where it has been for several quarters, but still below Fidelity’s suggested savings rate of 15%. By generation, Boomers had the highest average contribution rate of 16.6%.

“As we begin to see improvements in market conditions, maintaining high contribution and savings rates is an essential component of improving one’s retirement readiness,” said Kevin Barry, president of Workplace Investing at Fidelity Investments.

What can undercut progress is tapping your retirement funds well before you retire, because less of your money remains invested, so it can’t compound as quickly as it otherwise would have. Plus, if you simply withdraw the money, you will be taxed on it, and may have to pay an early withdrawal penalty of 10% if you’re under 59-1/2.

However, there are some circumstances where taking out a 401(k) loan that you pay back with interest can make sense, if doing so helps you solve an immediate financial conundrum that otherwise would hurt you long term.

Fidelity found that the percentage of participants with an outstanding 401(k) loan rose slightly in the second quarter to 17.1%, up from 16.6% in the first quarter. But that 16.6% was an all-time low, “well below the number of outstanding loans observed pre-pandemic,” the company noted.