Stocks rallied in the first quarter, and that was good news for retirement vehicles, including IRA, 401(k), and 403(b) retirement accounts.
A recent Fidelity survey of more than 30 million such accounts shows balances surged 30% on a year-over-year basis in the first three months of 2021.
“Consistent savings among workers and steady contributions from employers, buoyed by positive stock market performance, helped push average retirement account balances to record levels for the second consecutive quarter,” according to Fidelity. “In addition, IRAs benefitted from a seasonal increase in contributions as some investors made a tax-deferred contribution to their IRA before the tax filing deadline.”
The Fidelity study indicates IRA contributions increased in significant fashion ahead of the May 17 tax deadline.
“IRA activity increased in the first quarter as many investors made contributions to their IRAs for 2020 tax filing purposes,” according to article. “Investors made contributions to 1.3 million IRA accounts in Q1, a 52% increase over Q1 2020. Total IRA contributions increased to $4.3 billion in Q1 2021, nearly double the $2.9 billion in contributions from a year earlier.”
See also: Investing for (or in) Retirement
In other positive news, resurgent equity markets are preventing investors and workers from engaging in a retirement cardinal sin: borrowing against 401(k) plans.
“Despite many workers continuing to face financial challenges related to the pandemic, the percentage of workers with an outstanding 401(k) loan dropped to 17.5%, down from 19.7% in Q1 2020. Only 1.6% of 401(k) savers initiated a new loan in the first quarter, which was flat from Q4 2020 and down from 2.4% a year ago,” added Fidelity.
At a time when employers are facing labor shortages, retirement benefits can play a vital role in attracting and retaining talent. Some employers are reacting accordingly.
“Employers are also taking steps to help their workers save more for retirement. In addition to matching contributions to their employee’s accounts, employers are designing their workplace savings plans with features that can improve workers’ savings rates,” concluded Fidelity.
For more on income strategies, visit our Retirement Income Channel.