401(k) Balances Reach Record High

Americans may behind on their retirement savings goals, but their finances are on the mend. The average 401(k) balance at the end of 2012 hit a record high and increased 12% over the previous year, according to Fidelity Investments.

The quarterly analysis of 401(k) plans revealed that the average retirement account held $77,300 at the end of the year, which was up from $69,100 at the end of 2011. Roughly two-thirds of the increase was attributable to market action, while participant contributions accounted for one-third.

“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,” James MacDonald, president of Workplace Investing at Fidelity Investments said in a statement.

According to the survey, people are saving an average of 8% of their annual salaries in their 401(k)s. However, young investors are more likely to use a Roth account, which is more beneficial to them since they’re investing in the account for much longer and will likely be in a higher tax bracket when they retire. According to Fidelity:

“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%, more than three percentage points higher than the overall average.”

As of the beginning of 2013, participants now have the opportunity to convert money in an existing retirement savings plan to a Roth account, if your place of employment offers that investment option. Today, more workplace retirement plans offer a Roth savings option: 37% offer the option, which is up 12% from five years ago.