401k Rollovers, Not Contributions, Dominate IRA Assets

Time to 'turn IRAs back into active savings vehicles'

IRA rollovers, 401k, retirementHow to get IRAs back to original intent?

“Nearly 8 trillion dollars sits in Individual Retirement Accounts, or IRAs. This is nearly half of all the value held in the U.S. retirement system, which also includes employer pension funds and 401(k)s.”

It’s a good thing, right? Wrong, at least according to researchers from the Center for Retirement Research at Boston College.

IRAs “have drifted very far from their original intent” of helping those who need them most, Alicia Munnell and crew claim in a new study.

CRR notes that IRAs were “intended to give those without an employer plan access to a tax-deferred savings vehicle. While IRAs today hold nearly half of all private retirement assets, most of these funds are rollovers from 401ks, rather than contributions.”

The 14 percent of households who do contribute to IRAs include higher-income dual-earners who also save in a 401k, it adds, as well as moderate-income singles or one-earner couples (often with a 401k), and higher-income entrepreneurs with no current 401k.

The study’s authors then argue that “[o]ne way to turn IRAs back into an active savings vehicle—one used more for contributions—is to auto-enroll all workers without an employer plan in an IRA,” something seen recently in California, Oregon and other states, despite roadblocks from the administration and Congress.

“In 1974, IRAs were included in ERISA to ensure that those without an employer plan at work had some way to save on a tax-preferred basis,” the CRR concludes. “Today, IRAs are primarily a receptacle for rollovers from employer plans and, among those contributing to an IRA, more than half are also contributing to an employer plan. It is time to turn IRAs back into an active savings vehicle by auto-enrolling those without an employer plan into these accounts, with the ability to opt out.”

The Investment Company Institute recently reported that U.S. retirement assets totaled $26.1 trillion as of March 31, up 3.2 percent from December, and accounted for 34 percent of all household financial assets.

Assets in individual retirement accounts totaled $8.2 trillion at the end of the first quarter (the figure to which CRR refers), an increase of 4.1 percent from the end of the fourth quarter of 2016.

Defined contribution plan assets, including 401ks, were $7.3 trillion, up 3.7 percent from year-end 2016.

Government defined benefit plans—including federal, state, and local government plans—held $5.5 trillion in assets, a 2.1 percent increase.

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