trendspotting | PLANADVISER July/August 2017

IRAs Serving Their Purpose

People use them as both a savings and a rollover vehicle

By Lee Barney | July/August 2017

Individual retirement accounts (IRAs) are doing what they were created to do, according to the Investment Company Institute (ICI), which has released details about the demographics and savings behavior of IRA investors.

“With  $7.4 trillion in assets invested, traditional and Roth IRAs are successfully meeting their dual mission as contributory savings vehicles and as a place to transfer or consolidate assets from employer-sponsored retirement plans,” observes Sarah Holden, senior director of retirement and investor research at ICI.

Roth IRA investors tend to be younger, which ICI attributes to the fact that only recently have the rules regarding Roth IRA contribution limits, conversions and rollovers been eased. At year-end 2015, 31% of these investors were under age 40, whereas only 16% of traditional IRA investors were in that age bracket. Conversely, 25% of Roth IRA investors were 60 or older, compared with 40% of traditional IRA investors.

Eighty-five percent of traditional IRAs initiated in 2015 were opened with rollovers, whereas 71% of new Roth IRAs were opened with contributions.

Those who invest in IRAs are committed contributors, the ICI says, noting that more than 70% of those who made a traditional IRA contribution in 2014 did so again in 2015. For Roth IRA investors, that percentage rose to 80%. Roth IRA investors gravitate more toward equities than do traditional IRA investors, with 66% of Roth IRA assets invested in equities. Roth IRAs also had less allocated to bonds (7%) than did traditional IRAs (16%). ICI says this is because Roth IRA owners are younger than traditional IRA owners.