Bank of America, a financial powerhouse boasting over 260,000 employees, offers a robust 401(k) retirement savings plan.
This plan empowers Bank of America employees to contribute a portion of their income towards a secure future, but the crucial question remains: what investments do these savvy individuals choose to fuel their retirement dreams?
We will get to that, but first let’s go over why it is important.
What is a 401(k) Retirement Savings Plan?
A 401(k) plan is a powerful retirement savings tool provided by employers in the United States. It empowers employees to set aside a portion of their earnings before taxes are deducted, leading to immediate tax savings.
Here’s how it works:
Tax-Advantaged Savings: With a 401(k), you can invest a percentage of your income before income taxes are calculated. This reduces your taxable income, which can result in lower tax bills during your working years.
Investment Opportunities: The funds you contribute are invested in various options within the plan, such as mutual funds. This allows your money to potentially grow over time through market investments.
Employer Contributions: Many employers sweeten the deal by matching a percentage of your contributions, effectively adding free money to your retirement fund. It’s like getting a bonus for saving.
Tax-Deferred Growth: Your 401(k) investments grow tax-deferred until you decide to withdraw the funds in retirement. This means you won’t pay taxes on the gains or dividends your investments earn within the account.
Withdrawals in Retirement: When you retire and begin taking withdrawals from your 401(k), the funds are then subject to regular income tax. However, you may be in a lower tax bracket during retirement, potentially reducing your tax burden.
Roth 401(k) Option: Markedly, some plans offer a Roth 401(k) option. With this choice, you contribute after-tax dollars, but your withdrawals in retirement are tax-free. Undeniably, a valuable option if you anticipate being in a higher tax bracket in retirement.
A 401(k) retirement savings plan belongs to the category of defined contribution plans, where your retirement income depends on your contributions, investment choices, and market performance. It’s a crucial tool for building a secure financial future, providing both immediate tax advantages and long-term growth potential. So, as you plan for retirement, remember that your 401(k) is your ally in securing your financial well-being.
Bank of America 401(k) Plan
The Bank of America plan allows for matching contributions. Significantly, they make both a annual contribution and matching contributions. Match is equal to 100% of the first 5% of compensation. The annual contribution is the greater of 2% of compensation (and 3% after 10 years of service). But beware, employer contributions only begin after 1 year of service.
Form 5500 lists the investments Bank of America 401(k) plan participants selected for their retirement funds. Giving us insight into how their employees choose to invest for retirement.
401(k) plan sponsors are required to file Form 5500 with the Department of Labor each year.
What Are Target Date Retirement Funds?
Within the Bank of America 401(k) plan, you’ll discover a valuable investment option known as Target Date Retirement (TDR) funds. These funds are designed to evolve in line with your projected retirement year, making them an essential component of your retirement strategy. For Bank of America employees, they offer TDR funds managed by Blackrock.
Here’s a deeper dive into what they offer:
Strategic Evolution: TDR funds are dynamic portfolios that adapt their asset allocations as your target retirement date draws nearer. They are crafted to progressively transition from a heavier emphasis on equities to a more balanced and conservative mix that includes bonds.
Tailored to Your Timeline: When you choose a TDR fund for your investments, you’re essentially selecting a financial tool that is aligned with your retirement timeline. These funds are designed to take into account your intended retirement year and adjust their holdings accordingly.
Diverse Asset Mix: A TDR fund’s composition typically comprises a diversified blend of assets, such as U.S. Equity, International Equity, Real Assets, and Fixed Income funds. This diversified approach aims to optimize your returns while managing risk effectively.
By choosing a Target Date Retirement fund, you’re not just investing; you’re setting a financial course that considers your future retirement needs. As the years roll by, the fund automatically steers toward a more conservative stance, aiming to protect your wealth and provide you with a secure financial foundation for your retirement years. It’s a smart and hassle-free way to invest in your future.
Bank of America Employees Play It Safe
Curious about how Bank of America employees invest for retirement? You’re in luck! Let’s peek behind the curtain and discover their investment secrets.
Playing it Safe with Stable Value Funds:
Topping the list is the Stable Value Fund, accounting for a whopping 14% of total plan assets. This low-risk option is a clear favorite for B of A’s employees, showcasing their cautious approach to retirement investing.
Diversifying with the Vanguard S&P 500 Index Fund:
Coming in second is the Vanguard S&P 500 Index Fund, holding 13% of total assets. This fund tracks the performance of the 500 largest publicly traded companies in the US, ensuring a diversified and well-rounded approach to wealth accumulation.
Putting Faith in Their Own Company:
Bank of America employees demonstrate loyalty by holding 12% of their retirement assets in Bank of America stock. This investment represents almost $6 billion and was even the largest holding in the previous year.
What Can You Learn from B of A Employees?
B of A’s investment choices reveal a preference for stability and diversification. They favor low-risk options while still recognizing the potential of the broader market.
Plan assets as of 12/31/2022
(from Bank of America’s 2023 filing of Form 5500)
| Top 10 Investments | % |
| Stable Value Fund | 14% |
| Vanguard S&P 500 Index | 13% |
| Bank of America stock | 12% |
| Dodge & Cox Stock Fund | 8% |
| TRP Inst Lg Cap Growth | 8% |
| Vanguard Inst Extended Market Index | 7% |
| Blackrock Equity Dividend Fund | 4% |
| MFS International Growth Fund | 4% |
| Blackrock US Fun. Lg Cap Growth | 3% |
| Western Asset Core Bond Trust | 2% |
See the Bank of America 401(k) page for additional plan details and value of holdings.
Source: 2022 Form 5500 for Bank of America 401k plan
