A bit of good news about plan participant behavior.
New research finds the majority rollover assets from previous employers, rather than engaging in the far more tempting—and destructive—cash out.
Most U.S. households with traditional individual retirement accounts indicated their IRAs included rollovers from workplace retirement plans, according to a survey released today by the Investment Company Institute (ICI).
These rollovers allow investors to continue accumulating retirement savings when they change jobs over the course of their careers.
The study, “The Role of IRAs in US Households’ Saving for Retirement, 2018,” found that 58 percent of traditional IRA-owning households, or 19 million, indicated that their traditional IRAs contained rollovers from employer-sponsored retirement plans in 2018.
Traditional IRA owners cited multiple reasons for rolling over their retirement accumulations, including:
- avoiding leaving assets behind with a former employer (64 percent),
- preserving the tax treatment of the savings (60 percent),
- consolidating assets (54 percent), and
- having more investment options (54 percent).
More than four in 10 traditional IRA-owning households with rollovers indicated that they also took advantage of contributions.
“Traditional IRAs, which are the most common type of IRA, provide a vital tool for American workers to preserve and grow their retirement savings over their careers,” Sarah Holden, ICI’s senior director of retirement and investor research, said in a statement. “The data show that a majority of these households have planned ahead, having developed a multi-component strategy for managing their assets and income in retirement.”
IRA Withdrawal Frequency Is Low
The study also found that traditional IRA-owning households rarely withdrew from their accounts and that most of the withdrawals are retirement-related.
Only 26 percent of traditional IRA-owning households in 2018 took withdrawals in tax year 2017, consistent with previous years.
Eighty-five percent of households that made withdrawals were retired and only 5 percent of traditional IRA-owning households headed by individuals younger than 59 took withdrawals in tax year 2017.
Other key findings of the report include:
- One-third of US households owned IRAs in 2018. More than eight in 10 IRA-owning households also had accumulations in employer-sponsored retirement plans. More than 60 percent of all US households had either retirement plans through work or IRAs, or both.
- More than one-quarter of US households owned traditional IRAs in 2018. Traditional IRAs were the most common type of IRA owned, followed by Roth IRAs (owned by about 18 percent of US households) and employer-sponsored IRAs (owned by 6 percent).
- IRA-owning households cover a wide range of incomes. In 2018, most IRA-owning households had incomes less than $100,000: 12 percent had household incomes less than $35,000 and 40 percent had household incomes between $35,000 and $99,999.
- Most traditional IRA-owning households have a planned retirement strategy. Nearly two-thirds of traditional IRA-owning households indicated they have a strategy for managing income and assets in retirement. Typically, these strategies have many components, often including reviewing asset allocations, determining retirement expenses, developing a retirement income plan, setting aside emergency funds, and determining when to take Social Security benefits.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
