"401(k) plans are a popular choice for investors, as they offer a flexible, proven way to save for retirement," said
401(k) Plans Are Helping Millions of Americans Save for Retirement
More than 55 million Americans participate in 401(k) plans, which held an estimated
Americans Are Confident That 401(k)s Will Help Them Meet Their Retirement Goals
According to an ICI household survey conducted in fall 2018, 77 percent of all US households surveyed indicated that they were confident that 401(k) and other employer-sponsored retirement plan accounts can help individuals meet their retirement goals. Confidence among households owning at least one DC account or individual retirement account (IRA) in fall 2018 was even higher, at 83 percent. Even among households not currently owning retirement plan accounts, 62 percent expressed confidence in these plans.
How to Make the Most of a 401(k) Plan
For eligible savers not yet participating in their employer's plan, enrollment is the first step to taking advantage of a 401(k) plan. Other key steps include:
Max out the employer match to avoid leaving money on the table. Employers contribute to eight out of 10 401(k) plans, and often base their contributions on how much the employee contributes.
Decide on an investment approach. Some investors want to build their own portfolios and rebalance them over time. Others prefer to invest in target date funds, which hold a diversified mix of stocks and bonds that automatically rebalance to become less focused on growth and more focused on income as savers approach retirement. More than two-thirds of 401(k) plans offer target date funds, and more than half of 401(k) investors use this increasingly popular option.
Preserve the nest egg. For some workers, it can be tempting to cash out of a 401(k) when changing jobs, especially if the account balance is small. However, doing so before retirement may result in a large tax bill, including an additional tax penalty of 10 percent of the taxable amount withdrawn. Instead, workers may want to consider moving the balance into their new employer's plan or remaining in their previous plan. If these options aren't available, investors may consider rolling their account balance into an IRA.