401k Rollovers Roll On, Despite Fiduciary Rule

'Vast majority' transferred entire retirement plan account balance in their most recent rollover

401k, IRA, retirement, ICIAmericans like their IRAs.

It appears the fiduciary rule hasn’t dampened 401k-to-IRA rollovers as much as once thought.

In mid-2017, over half of traditional IRA owners, or 20 million households, indicated their IRAs contained rollovers from employer-sponsored retirement plans.

Overall, more than a third of households indicated they owned individual retirement accounts (IRAs) in mid-2017, according to an updated study released today by the Investment Company Institute (ICI).

These households held their IRAs through a wide array of financial institutions, including investment professionals, mutual fund companies, and discount brokers.

The study, “The Role of IRAs in US Households’ Saving for Retirement, 2017,” examines contribution, withdrawal, and retirement planning activities by traditional IRA-owning households.

The study found traditional IRAs remain the most common type of IRA, owned by 35.1 million, or 27.8 percent, of households in mid-2017.

Roths were the second most common type, held by 19.7 percent of households, and employer-sponsored IRAs, including SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs, were held by 6 percent of US households.

Among traditional IRA-owning households, 77 percent held their traditional IRAs through investment professionals, including full-service brokerages, financial planning firms, banks or savings institutions, and insurance companies.

Thirty percent held their traditional IRAs through direct market sources, including mutual fund companies and discount brokers.

“U.S. households have access to a full range of investment options for opening their IRAs,” Sarah Holden, senior director of retirement and investor research at ICI, said in a statement. “This level of accessibility is one of the most popular features of IRAs as a vehicle for retirement savings.”

Traditional IRAs Often Contain Rollovers

The vast majority of IRA owners with rollovers transferred the entire retirement plan account balance in their most recent rollover.

“Investors typically research rollover and withdrawal decisions and tend to steward the assets to and through retirement,” Holden added. “The broad range of financial services options available when investing in an IRA means that traditional IRA-owning households can personalize their investment choices. In addition, most of these households have a planned strategy for managing income and assets in retirement.”

The most common reasons that Americans cite for rolling over their retirement accumulations into traditional IRAs are:

  • Avoid leaving assets behind at a former employer (63 percent)
  • Preserve the tax treatment of the savings (59 percent)
  • Consolidate assets (58 percent)
  • Receive access to more investment options (49 percent)

Measured Withdrawal Activity Demonstrates IRA Savers’ Strategic Approach

Traditional IRA-owning households rarely take withdrawals prior to retirement and often wait until government rules require withdrawals. Among the 9.1 million traditional IRA-owning households that took withdrawals in tax year 2016, 71 percent calculated the withdrawal using the required minimum distribution (RMD) rule, making it the most common approach to withdrawals.

Traditional IRA-owning households that took withdrawals in tax year 2016 were strategic in their withdrawal activities, usually consulting outside sources to determine the amount of the withdrawal, with 64 percent consulting a professional financial adviser to determine the amount to withdraw. Eighty-one percent of households that made traditional IRA withdrawals were retired.

Retirees used their traditional IRA withdrawals for a variety of purposes, including to cover living expenses, reinvest or save into another account, use for home purchase or repair, or to pay for healthcare expenses.

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