Questions about the effect the Department of Labor’s fiduciary rule will have on 401k-to-IRA rollovers appeared to have little impact on the strategy last year, despite—or maybe because of—confusion over whether or not the rule will even move forward.
In 2016, 59 percent of all traditional IRA-owning households had IRAs that included rollover assets, according to a mid-January survey release from the Investment Company Institute. When asked about their most recent rollover, the vast majority (82 percent) of these households transferred their entire 401k plan account balance into the traditional IRA.
Nearly nine in 10 traditional IRA-owning households with rollovers made their most recent rollover in 2000 or later, including 74 percent whose most recent rollover was in the past 11 years.
Households cited multiple reasons for rolling over accumulations from their employer-sponsored 401k plans to traditional IRAs.
For example, 64 percent did not want to leave assets with their former employer and 63 percent said they wanted to preserve the tax treatment of the savings. Fifty-eight percent of the households surveyed rolled assets into a traditional IRA to increase investment options and 57 percent indicated they wanted to consolidate savings. Survey data also showed households researched the decision to roll over money from their former employer’s retirement plan into a traditional IRA, with 67 percent of households consulting multiple sources of information before making the move.
The study, “The Role of IRAs in US Households’ Saving for Retirement, 2016,” found that most traditional IRA–owning households have a strategy for managing income and assets in retirement and sought information from multiple sources when building that strategy.
ICI data indicate that 76 percent consulted a professional financial adviser when creating their strategy, 26 percent consulted a website, 24 percent consulted with friends or family, 23 percent consulted written materials, such as a book, magazine, or newspaper, and 10 percent used a financial software package.
“IRAs have grown in popularity among American households and play an increasingly important role in saving for retirement,” Sarah Holden, ICI’s senior director of retirement and investor research, said in a statement. “Rollovers continue to fuel recent IRA growth, and this trend demonstrates the IRA is working as designed-enabling investors to accumulate retirement savings while consolidating assets and accessing a range of financial services providers and investment options.”
IRA withdrawals are infrequent, mostly retirement related
Twenty-five percent of traditional IRA-owning households surveyed in 2016 had taken withdrawals in tax year 2015, and nearly 90 percent of them were retired. Most of the withdrawals were required minimum distributions (RMDs), which traditional IRA owners are required to take beginning at age 70½.
Traditional IRA withdrawals were generally used for living expenses, reinvestment, home purchase or repairs, healthcare expenses, or emergencies.