It’s taken three years, but the average 401(k) finally contains the same amount that it did in 2007. The average Fidelity 401(k) held $69,200 in 2007. Then the average account balance plunged to $50,200 in 2008, due to market declines. By the end of 2009, average balances climbed to $64,200. But it took until 2010 for retirement savers to regain the 401(k) balances they had in 2007. The average 401(k) account balance was $71,500 at the end of 2010.
It took a lot of saving for workers to recover their former balances. The average 401(k) participant socked away 8.2 percent of their pay for the past 2 years, not including employer contributions, according to the analysis of 17,000 Fidelity 401(k) plans with 11 million participants. For someone who earns $50,000 annually, that’s $4,100 a year.
Saving for retirement was made even more difficult when many employers cut their 401(k) matches during the recession. Some 8 percent of Fidelity plan sponsors reduced or eliminated their employer contributions in 2008 and 2009. Since then, only about half (55 percent) have reinstated the match or plan to in 2011. Large companies with 5,000 or more employees generally were the most likely to resume the match (71 percent). A 401(k) match is a valuable incentive to participate in a 401(k) plan. Some 80 percent of people who contribute regularly to a Fidelity 401(k) received employer contributions in 2010.
High income workers continue to be the most likely to utilize 401(k) plans. Participation drops to 71 percent among employees earning between $40,000 and $60,000 and just half (53 percent) of workers earning between $20,000 and $40,000.
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About a fifth of Fidelity 401(k) plans offered a Roth 401(k) option in 2010. Roth 401(k) contributions are made with after-tax dollars and withdrawals in retirement are tax free. Traditional 401(k) deposits give you a tax break in the year you make the contribution, but income taxes are due upon withdrawal. Roth 401(k) accounts were especially popular with young and low income workers. More than twice as many 401(k) participants in their 20s (9 percent) contributed to a Roth 401(k) as those age 50 and older (4 percent). And approximately half of Roth 401(k) contributors earn less than $75,000 annually.