The Role of IRAs in US Households’ Saving for Retirement, 2019
ICI RESEARCH PERSPECTIVE, DECEMBER 2019 // VOL. 25, NO. 10
40 Pages Posted: 8 Sep 2020
Date Written: December 11, 2019
This paper presents survey results on the incidence of IRA ownership in the United States and the activity of IRA-owning households. In mid-2019, 36 percent of US households owned individual retirement accounts (IRAs). More than eight in 10 IRA-owning households also had employer-sponsored retirement plan accumulations or had defined benefit plan coverage. All told, more than six in 10 US households had retirement plans through work or IRAs; three-quarters of near-retiree households did. In mid-2019, 28 percent of US households owned traditional IRAs. 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. About six in 10 traditional IRA–owning households in mid-2019 indicated their IRAs contained rollovers from employer-sponsored retirement plans. Among households with rollovers in their traditional IRAs, 86 percent indicated they had rolled over the entire retirement account balance in their most recent rollover; 43 percent 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 three most common primary reasons for rolling over were not wanting to leave assets behind at the former employer, wanting to preserve the tax treatment of the savings, and wanting to consolidate assets (25 percent, 17 percent, and 17 percent of traditional IRA–owning households with rollovers, respectively). Another 12 percent of traditional IRA–owning households with rollovers indicated their primary reason for rolling over was to access more investment options. Although most US households were eligible to make IRA contributions, few did so. Only 12 percent of US households contributed to traditional or Roth IRAs in tax year 2018. Other research finds confusion over rules or satisfying savings needs at work may explain lack of contributions. In addition, traditional IRA–owning households without contributions tended to have rollovers (62 percent) or have a defined contribution (DC) plan account (69 percent). Nearly half (45 percent) of traditional IRA–owning households without contributions were retired. IRA withdrawals were infrequent and mostly retirement related. The majority of traditional IRA withdrawals were made by retirees. Seventy-seven percent of traditional IRA–owning households with withdrawals calculated the withdrawal using the required minimum distribution (RMD) rule — this was the most common amount withdrawn. Most traditional IRA–owning households have a planned retirement strategy.
Keywords: Retirement, IRAs, Asset Allocation, Investor Behavior
JEL Classification: D14, D31, G11, J26
Suggested Citation: Suggested Citation