Have a $1 Million 401(k)? You're Not Ready to Retire
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Your Money Briefing. Money and Market Stories from The Wall Street Journal. I'm J.R. Whalen in New York. When is a million dollars not a million dollars? When Uncle Sam comes a-knocking, and his knocking is about to get a lot louder. We'll explain why that's important to retirement savers in a moment. First, these money headlines.
What tax warning opens this episode about $1 million 401(k) accounts?
Rates for home loans powered to their highest since 2011, setting up a fresh test for a housing market already strained by lien supply and surging prices. The 30-year fixed rate mortgage averaged 4.61% in the week ending May 17th. That's according to mortgage finance provider Freddie Mac. That was a six basis point jump, and it marked the highest for the popular product since May of 2011. Now, the 30-year fixed-rate mortgage is still substantially lower than its long-time average. That's a little comfort, though, for would-be homebuyers. Home prices aren't just rising faster than incomes are, they're accelerating. And the 15-year fixed-rate mortgage, by the way, averaged 4.08%. Thank you for having me.
all in an effort to lure investors. Investors have poured more than a billion dollars into the 271 coin offerings with the journal-identified red flags. That's according to a review of company statements and online transaction records.
Which current market and housing headlines set the financial context?
Nearly one in five of those reviewed. Some of the firms are still raising funds, while others have shut down. Investors have so far claimed losses of up to $273 million in these projects. That's according to lawsuits and regulatory actions. This is your Money Briefing from The Wall Street Journal. Welcome back, everybody. When is a million dollars not a million dollars? When you're talking about pre-tax 401k accounts. Tax attorney and certified financial planner Rebecca Walser joins us via Skype to explain why savers need to be aware not only of their retirement account tax liabilities, but rising tax rates that will potentially impact their savings as well. So Rebecca, can you explain why the taxation on 401k retirement accounts is likely to go up?
Sure, of course. And it's just a simple matter of math. If we just look at we just had a tax cut. Right. And so we now right now have the lowest taxes we've had really almost since Reagan. There's a couple of Bush era years there were low. But basically, with these low tax rates, taxes, in my opinion, are on sale in 2018. And if you just read the tea leaves, which is twenty one trillion dollars of debt and really more urgently is the actual retirement of the boomers en masse. So we hear a lot that 10,000 boomers retire a day. But that's actually not really true. The concentration of the baby boomer generation were really born so that they are going to retire in mass, about 70 percent of them from 2022 to 2027.
You've got that many people retiring in that sort of a window. You can see that the shift of benefit payments is going to affect the tax code very, very soon.
So Fidelity Investments released a report on Thursday and it pointed out that the number of Fidelity 401 accounts with a balance of a million dollars or more rose by 45 percent in the first quarter of this year. That's a good showing for savers. But you're of the belief that a 401k is not the best sole vehicle for saving for retirement.
The 401k, I think, is going to be looked back on. And this actually really already happened. If you look at the cover of Time magazine, for example, it's in 2009, right after the Great Recession, it said it was time to retire the 401k. And that was really more about market volatility and not so much about taxes. So there's really two factors that really can detriment a retirement saver inside the 401k, and that is market volatility and it is taxes. So if we look at the market volatility piece of it for a second, the reason that we had a 45% increase in the fidelity plans that went from $108,000 to $157,000 not so much that they were able to contribute so much more in the last year, but it's because the market itself has had the highest highs ever.
ever. Dow, Nasdaq and the S&P 500 all hit the highest highs ever multiple times in the last 12 months.
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