401(k) Participants Savings More

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 option.   

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 data shows.