Retirement account balances hit record highs as Millennials and Gen Z embrace Roth IRAs

Retirement account balances reached fresh records in the third quarter, capping off a period of sustained growth that has largely defied economic headwinds.

The latest quarterly read from Fidelity shows average 401(k) balances climbed to $144,400, representing a 5% jump from the previous quarter and marking the sixth consecutive quarter-over-quarter increase since mid-2023. Individual retirement accounts and 403(b) plans followed similar trajectories, with IRAs averaging $137,902 and 403(b)s hitting $131,200 – all posting year-over-year gains ranging from 7% to 10%.

According to the new report from Fidelity, the gains reflect a combination of factors: workers have maintained consistent contribution rates despite ongoing economic uncertainty, while stock market strength has bolstered portfolio values.

What's particularly striking is that savings behavior has remained steady across different retirement account types, suggesting that workers are prioritizing long-term wealth accumulation regardless of near-term economic conditions.

Among younger savers, a notable shift is underway. One-fifth of Gen Z 401(k) participants are funneling contributions into Roth versions of the accounts, a sharp contrast to older generations' more cautious approach. That bias is even starker with IRAs: Gen Z investors are directing 95% of their IRA contributions into Roth accounts, compared to 75% for millennials and 66% for Gen X. Across Fidelity's platform, Roth IRAs now represent 77% of all IRAs, up from roughly 71% four years earlier.

Another study by the Investment Company Institute found 46% of Boomers owned traditional IRAs, while 24% owned Roth IRAs. Millennials were slightly more biased toward Roths (29%, vs. 20% in traditional IRAs), while the Gen Z split was 25% vs. 12%.

The generational divide in demand for Roth vehicles reflects a long-term bet apparently emerging among younger workers. For Gen Z workers who have decades before retirement, tax-free withdrawals later in life can potentially outweigh the benefits of immediate tax benefits available through traditional accounts.

Sharon Brovelli, president of workplace investing at Fidelity, said that "Americans are continuing to exhibit impactful savings behaviors such as staying the course and focusing on long-term goals, which clearly is having a positive effect on retirement savings."

She added that witnessing "balances and saving behaviors increase across all savings vehicles is encouraging, especially as savers continue to navigate an uncertain economic environment."

A secondary trend gaining momentum is auto portability, an automated rollover service for workers changing jobs. Over 9,200 employer plans have adopted the feature since 2022, streamlining what has historically been an onerous process.

Industry research shows why: only 22% of workers successfully rolled over their savings without assistance, and 42% reported the process stretched beyond two months. For financial advisors, auto portability is a potential solution to a persistent client pain point.

Robert Mascialino, president of wealth at Fidelity, said investors "recognize [Roth products'] potential for tax advantages and long-term growth" through consistent saving across all age groups.