Recent research from the Investment Company Institute (ICI) examines the role of individual retirement accounts (IRAs) in U.S. households today.
The findings show that more workers are utilizing IRAs for their retirement savings, with more than four in 10 households owning the accounts when surveyed in mid-2022. IRAs represented 34% of U.S. total retirement market assets, almost double of the 18% recorded three decades ago.
“Millions of Americans rely on IRAs for their financial security in retirement. Our survey research finds an increasing number of IRA-owning households and that IRA assets represent a significant component of households’ balance sheets,” said Sarah Holden, ICI senior director of retirement and investor research, in a statement. “Retirement savers plan deliberately for their next stage of life with IRAs—with 60 percent of traditional IRA–owning households having rolled over assets from an employer-sponsored retirement plan account. Retirement savers often use rollovers to consolidate assets as they change jobs over their careers.”
Traditional IRAs were the most common type of IRA owned (31%), followed by Roth IRAs and employer-sponsored IRAs. Households who owned IRAs also tended to have employer-sponsored retirement plan accumulations or defined benefit (DB) plan coverage. More than seven in 10 households participated in a retirement plan through their employer or an IRA.
From workplace plan to IRA
Despite research from Vanguard finding that more retirees are staying within their employer-sponsored retirement plan, ICI reports that in mid-2022, 60% of traditional IRA-owning households said their IRAs contained rollovers from a workplace retirement plan.
Additionally, among households with rollovers in their IRAs, 85% said they had rolled over their entire retirement account balance in their most recent rollover, and 44% had also made contributions to their traditional IRAs at some point, according to findings from ICI.
The three most common reasons for rolling over were not wanting to leave assets behind at a former employer (22%), wanting to consolidate assets (22%), and wanting to preserve the tax treatment of the savings (15%).
Roth IRA owners likelier to contribute more than traditional owners
The ICI research notes that those with a Roth IRA were almost twice as likely to contribute to their accounts than traditional IRA owners, at 39% vs. 22%. The reason for this may be that many households who own traditional IRAs use them to preserve rollovers rather than as a contributory savings vehicle, says ICI.
Traditional IRA were likelier to take withdrawals, despite being infrequent—29% of traditional IRA–owning households in mid-2022 took withdrawals in tax year 2021 compared with 23% in tax year 2020. Ninety percent of households who made traditional IRA withdrawals were retired. ICI notes that “some of the increase in withdrawal activity resulted from the return of required minimum distributions in tax year 2021, which had been suspended in tax year 2020.”
Additional findings from the ICI’s “The Role of IRAs in US Households’ Saving for Retirement, 2022” can be found here.
SEE ALSO:
- More Retirees Stay In their Plan Post-Employment
- IRA Assets Approach $14 Trillion Thanks to 401(k) Rollovers
- State IRA Programs Boost Private 401(k) Plan Adoption
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
