In mid-2023, 55.5 million U.S. households, or 42.2%, reported that they owned an individual retirement account (IRA), representing 36% of household financial assets among those owning them.
This according to a new study released Feb. 29 by the Investment Company Institute (ICI), which also found that traditional IRA–owning households are more likely to have engaged in rollover activity, while Roth IRA–owning households have higher contribution rates.
The study, The Role of IRAs in US Households’ Saving for Retirement, 2023, gathers information on the characteristics and activities of IRA-owning households in the United States.
“Our research finds that IRA-owning households report willingness to take some investment risk for financial gain.”
ICI’s Sarah Holden
Fidelity reported this week that the average IRA balance among its more than 45 million IRA, 401(k) and 403(b) retirement account holders was $116,600 at the end of 2023, up 6% from Q3 2023, and 12% from Q4 2022. There were also 391,562 “IRA millionaires” (those with seven-figure IRA account balances) as of Dec. 31, 2023, up significantly from 280,320 at the end of 2022.
“People of all ages rely on IRAs to build substantial financial assets. Our research finds that IRA-owning households report willingness to take some investment risk for financial gain,” said Sarah Holden, ICI senior director of retirement and investor research. “Reflecting this willingness to reach for investment returns, more than seven in 10 IRA-owning households held mutual funds and more than three in 10 held exchange-traded funds (ETFs) in their traditional or Roth IRAs.”
Rollover activity has fueled recent IRA growth. In mid-2023, about 25 million US households, or 62% of US households owning traditional IRAs, had traditional IRAs that included rollover assets. Among households with rollovers in their traditional IRAs, 43% had made traditional IRA contributions in addition to their rollovers.
Among traditional IRA–owning households with rollovers, 86% indicated that they had preserved their entire employer-sponsored retirement plan balance in their most recent rollover. The three most common primary reasons for rolling over were not wanting to leave assets behind at the former employer, wanting to consolidate assets, and wanting more investment options.
The research also found that traditional IRA–owning households research the rollover decision and often consult multiple sources of information. Among those with rollovers, 63% consulted multiple sources of information including financial advisors, materials provided by their employer, and financial services firms’ information.
Other key findings include:
- Majority of U.S. households have tax-advantaged retirement savings. More than seven in 10 households had retirement plans through work or IRAs; being later in the life cycle of saving, more than eight in 10 near-retiree households did.
- Roth IRA–owning households were more likely to report contributions than traditional IRA–owning households. Nearly four in 10 Roth IRA–owning households in 2023 had made contributions in tax year 2022, compared with more than two in 10 traditional IRA–owning households.
- Traditional IRA–owning households tend to steward their IRA assets through retirement: traditional IRA withdrawals are infrequent, typically made by retirees, and generally started when required. Thirty-one percent of traditional IRA-owning households in mid-2023 took withdrawals in tax year 2022. Ninety percent of households that made traditional IRA withdrawals were retired. Only 5% of traditional IRA–owning households in mid-2023 headed by individuals younger than 59 took withdrawals. Among those taking withdrawals, 76% withdrew the required minimum distribution (RMD).
- Most traditional IRA–owning households have a planned retirement strategy. About two-thirds of traditional IRA–owning households in mid-2023 indicated that they have a strategy for managing income and assets in retirement. Typically, these strategies have many components, including reviewing asset allocations, determining their retirement expenses, developing a retirement income plan, setting aside emergency funds, and determining when to take Social Security benefits.
“The Role of IRAs in US Households’ Saving for Retirement, 2023” reports information from two separate ICI household surveys. ICI’s IRA Owners Survey, which was conducted in June 2023, is based on a representative sample of 3,255 U.S. households owning traditional IRAs or Roth IRAs.
SEE ALSO:
• After SECURE 2.0: Rethinking Roth 401(k) vs. Roth IRA
• Industry Groups Support Public-Private Approach in Automatic IRA Act Endorsement
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
