Fidelity Investments today released its quarterly analysis¹ of 401(k) plans, which showed the average balance had increased to another record high² by the end of 2012. The average 401(k) balance hit $77,300 at the end of the year, up from $69,100 one year earlier, an increase of 12 percent. The fourth-quarter average balance tops the previous quarter’s high of $75,900. About two-thirds of the 2012 increase was attributable to market action while one-third was due to participant contributions.

“It’s encouraging to see how continued savings combined with a healthy equity market have led to another record-high balance for 401(k) savers,” said James MacDonald, president, Workplace Investing, Fidelity Investments. “Our efforts at Fidelity are focused on keeping participants engaged in the retirement planning process by providing the tools and support to help them better understand where they are in relation to their goals as well as steps they can take to achieve better outcomes.”

Participants on average save³ 8 percent of their annual salaries in their 401(k) plans. When the typical employer contribution is factored in, be it a match or profit sharing, the average participant’s total savings rate increases to 12 percent. In addition, for a 15th straight quarter, more participants increased their savings rate than decreased it (5.8 percent vs. 3.1 percent). 

Roth Participants Boast a Higher Savings Rate
Recent legislative provisions have raised awareness of Roth 401(k) opportunities for workplace participants, such as tax-free growth potential and tax-free withdrawals for them and their heirs⁴. Regulations now allow participants to convert money in existing qualified savings plans to a Roth account, should their plan include the investment option⁵. Today, 37 percent of workplace retirement plans offer a Roth savings option, up from 12 percent five years ago. Of these plans, 12 percent of them offer the Roth in-plan conversion option.

Younger investors tend to utilize Roth the most. One-in-10 (10 percent) participants in their 20s contribute to this option, versus 6 percent overall. These individuals may be well-positioned to benefit from Roth due to their long investment horizon and the likelihood they will be in a higher tax bracket upon retirement.

Roth contributors also boast a higher savings rate, deferring an average of 11 percent. Nearly six out of 10 (59%) of these participants utilize a tax diversification strategy by saving a portion in a post-tax Roth 401(k) as well as a pre-tax savings option. When factoring in employer contributions, Roth participants show a total savings rate of 15.3 percent, more than 3 percentage points higher than the overall average.