IRAs were a good idea—that’s the obvious but important finding from two new reports released by the Investment Company Institute.
The research provides detail on the typical age of investors in both traditional and Roth accounts, how they begin saving in IRAs, and differences in asset allocations between owners of the two.
“Though there are significant differences between traditional and Roth IRA investors, both provide savers with flexibility and diversification in their retirement savings options,” Sarah Holden, ICI senior director of retirement and investor research, said in a statement. “Traditional IRAs are a popular option for savers who are looking to roll over a workplace retirement plan account, while Roth IRAs are often started with contributions. Both IRAs have options that appeal to workers in various stages of their lifetime savings cycles and help millions of Americans prepare for retirement.”
Key findings from the reports include:
- Roth IRA investors tend to be younger than traditional IRA investors. At year-end 2016, 31 percent of Roth IRA investors were younger than 40, compared with 16 percent of traditional IRA investors. Only 26 percent of Roth IRA investors were 60 or older, compared with 41 percent of traditional IRA investors.
- New traditional IRAs are typically opened by rollovers, while Roth IRAs are more often started with contributions. More than 80 percent of new traditional IRAs in 2016 were opened only with rollovers from other tax-deferred retirement savings vehicles.
- By contrast, rollovers are less common with Roth IRAs, and contribution activity plays a more important role in Roth IRAs.
- IRA investors with contributions tend to persist with the contribution activity year-to-year. According to the research, more than seven in 10 traditional IRA investors who contributed in tax year 2015 also contributed in tax year 2016. Persistence in contribution activity was even higher for Roth IRA investors.
- Allocation to target date funds and non–target date balanced funds were similar between Roth IRAs and traditional IRAs, but Roth IRAs had less allocated to bonds and bond funds than traditional IRAs. Roth IRAs also had a lower allocation to money market funds than traditional IRAs.
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.
