An analysis of 401(k) plans administered by Fidelity
Investments shows the average participant balance increased to another record
high 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%. 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, Fidelity said.
Participants, on average, save 8% 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%. In addition, for a 15th straight quarter, more participants
increased their savings rate than decreased it (5.8% versus 3.1%).
Fidelity noted that regulations now allow participants to
convert money in existing qualified savings plans to a Roth account, should
their plan include the investment option (see “The
Increased Availability of Roth In-Plan Conversions”). According to
Fidelity, 37% of workplace retirement plans offer a Roth savings option, up
from 12% five years ago. Of these plans, 12% offer the Roth in-plan conversion
Younger investors tend to utilize Roth the most. One-in-10
participants in their 20s contribute to this option, versus 6% 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, Fidelity noted.
Roth contributors also boast a higher savings rate,
deferring an average of 11%. 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%, Fidelity