The Role of IRAs in U.S. Households’ Saving for Retirement, 2015

Abstract

This paper presents survey results on the incidence of IRA ownership in the United States and the activity of IRA-owning households. Nearly one-third of U.S. households owned IRAs in 2015. More than eight in 10 IRA-owning households also had employer-sponsored retirement plan accumulations or had defined benefit plan coverage. Nearly one-quarter of U.S. households owned traditional IRAs in 2015. Traditional IRAs were the most common type of IRA owned, followed by Roth IRAs and employer-sponsored IRAs. Rollovers from employer-sponsored retirement plans have fueled the growth in IRAs. Nearly half of traditional IRA-owning households indicated their IRAs contained rollovers from employer-sponsored retirement plans. Among households with rollovers in their traditional IRAs, 76 percent indicated they had rolled over the entire retirement account balance in their most recent rollover. More than half also had made contributions to their traditional IRAs at some point. Traditional IRA-owning households with rollovers cite multiple reasons for rolling over their retirement plan assets into traditional IRAs. The two most common primary reasons for rolling over were wanting more investment options (21 percent of traditional IRA-owning households with rollovers) and not wanting to leave assets behind at the former employer (19 percent of traditional IRA-owning households with rollovers). Another 16 percent of traditional IRA-owning households with rollovers indicated their primary reason for rolling over was to consolidate assets. Although most U.S. households were eligible to make IRA contributions, few did so. Only 14 percent of U.S. households contributed to any type of IRA in tax year 2014, and very few eligible households made catch-up contributions to traditional IRAs or Roth IRAs. IRA withdrawals were infrequent and mostly retirement related. Twenty-two percent of traditional IRA-owning households took withdrawals in tax year 2014, compared with 20 percent in tax year 2013. The majority of traditional IRA withdrawals were made by retirees. Seventy-three percent of households that made traditional IRA withdrawals were retired. Indeed, only 9 percent of traditional IRA-owning households in mid-2015 headed by individuals younger than 59 took withdrawals. Sixty-one percent of withdrawals were calculated using the required minimum distribution (RMD) — this was the most common amount withdrawn. Traditional IRA-owning households not making withdrawals generally indicated they do not plan to tap their IRAs until age 70½. Seventy-two percent of traditional IRA-owning households not making withdrawals in tax year 2014 indicated it was unlikely they would withdraw from their traditional IRAs before age 70½. The most commonly cited planned future uses of traditional IRA withdrawals were to pay for living expenses and cover emergencies.

Keywords: Retirement, IRAs, Asset Allocation, Investor Behavior

JEL Classification: D14, D31, G11, J26