Fidelity IRA Contribution Rates at Record Levels

Average individual retirement account (IRA) contributions for tax year 2013 reached $4,150—a 5.7% increase from 2012 and an all-time high, according to Fidelity Investments.

Over 7 million IRAs recordkept by Fidelity were analyzed to determine the average contribution rates. Findings from the analysis suggest that investors age 50 or older continue to save the most in both traditional and Roth IRAs. Researchers also note that younger investors, most notably those between the ages of 20 and 49, continue posting strong annual increases in average IRA contributions. The assessment matches other recent research predicting total IRA assets could top $9 trillion by 2018 (see “IRAs Could Hit $9T by 2018”).

According to the Fidelity analysis, younger investors seem to favor the advantage of the potential tax-free withdrawals made possible through Roth IRAs, which allow workers to contribute after-tax dollars. Older investors are also using the Roth IRA savings vehicle once they hit age 70½ and can no longer contribute to a traditional IRA, Fidelity says.

Across all age groups, average IRA balances reached $89,100 by year-end 2013. This approximately 10% year-over-year increase appears to be balanced across all age groups, Fidelity says. The strong growth, due in part to increasing contributions, also relied heavily on recent market gains and could signal equity overweighting and excess risk are likely in IRA portfolios that are not regularly rebalanced (see “Equity Overweighting Likely as 401(k)s See Record Balances”).

“Annual contributions, along with age-appropriate asset allocation strategies, play key roles in building a strong foundation for retirement,” explains Ken Hevert, vice president of Fidelity Investments.

Hevert says the analysis reveals that saving more, paying off debt and spending less were the top three objectives of current IRA holders. He says this is a positive trend in the right direction for both younger and older participants investing for retirement.

“The fact that IRA contributions are up across all age groups is a positive indication that many people are indeed committed to saving for retirement by putting at least a portion of what they earn into tax-advantaged vehicles such as an IRA,” Hevert adds.