Americans boosted their 401(k) savings in 2023, BofA report reveals

There were fewer hardship withdrawals taken last year, too.

Americans were prioritizing retirement savings in 2023 despite the challenging economic environment.

The average balance in 401(k) accounts last year increased 15% year-over-year, to $86,280, as participants contributed more and saw the value of their investments increase.

In the fourth quarter of 2023, 18% of plan participants boosted their contributions, double the share who did so in the previous quarter (9%) although the average contribution amount was down slightly at $1,310 (from $1,430). There was a slightly higher share of participants who decreased their contributions (3.1%) than in the third quarter (2.2%) while 2% with automatic enrollment opted out.

Fewer withdrawals were recorded among the 4 million participants included in the analysis, which was conducted in partnership with Bank of America Institute. The share of participants who borrowed from their 401(k) account was 2.3% in the fourth quarter, down from 2.5% in the third quarter, with the average amount slightly lower, too, at $8,210 (from $8,530).

Just 0.57% of participants took hardship withdrawals during the fourth quarter, down slightly from the previous quarter, with an average amount of $4,370, the lowest quarterly average of 2023.

Health saving -ccounts also saw increased balances, rising 11% at year-end compared to a year earlier to $4,380, with more than four in ten adding more than they took out. More than three quarters of HSA contributions were spent on health care expenses, while 24% were saved.

Millennials saved 34% of their HSA contributions, more than any other generation, and men invested 17% of their contributions for future growth, compared to 11% of women.

“We were encouraged to see more plan participants taking positive actions in their accounts in the fourth quarter,” Lorna Sabbia, head of retirement and personal wealth solutions at Bank of America, said in a statement. “These insights offer signs that people are prioritizing their retirement savings, with more employees increasing their contribution rates and fewer taking hardship distributions.”

Recent research found that small-business owners are mostly in the dark about the tax incentives they could be getting for starting up retirement plans, as multiple states have introduced or are preparing to introduce auto IRAs.