The Investment Company Institute (ICI) has issued two new reports on individual retirement accounts (IRAs) that show they remain successful vehicles for retirement savers. The reports, “The IRA Investor Profile: Traditional IRA Investors’ Activity, 2007 – 2016” and “The IRA Investor Profile: Roth IRA Investors’ Activity, 2007 – 2016,” analyze data from The IRA Investor Database, which tracks more than 17 million IRA investors.
“Though there are significant differences between traditional and Roth IRA investors, both [types of accounts] provide savers with flexibility and diversification in their retirement savings options,” says Sarah Holden, ICI senior director of retirement and investor research. “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 cycle and help millions of Americans prepare for retirement.”
The reports show that Roth IRA investors tend to be younger than traditional IRA investors. At year-end 2016, 31% of the former were younger than 40, compared with 16% of the latter. Only 26% of Roth IRA investors were 60 or older, compared with 41% of traditional IRA investors.
New traditional IRAs are typically opened by rollovers, while Roth IRAs are more often started with contributions. More than 80% of new traditional IRAs in 2016 were opened exclusively with rollovers from other tax-deferred retirement savings vehicles, and more than half of traditional IRA investors with an account balance at year-end 2016 had rollovers in their account. By contrast, 70% of new Roth IRAs as of in 2016 were opened through contributions.
IRA investors who make contributions tend to maintain their contribution activity from year to year. More than 70% of traditional IRA investors who contributed in tax year 2015 also did so in 2016. The same can be said for 80% of Roth IRA investors.
Roth IRA assets are allocated more to equities and equity funds that are traditional IRAs. At year-end 2016, 65% of Roth IRA assets were invested in equities and equity funds, compared with 53% of traditional IRAs’ assets. For both types of accounts, allocation to target-date funds (TDFs) and balanced funds was similar: 19% to Roth IRAs and 18% to traditional IRAs. But it differed with respect to bonds and bond funds, with 7% of Roth IRAs having this exposure and 9% of traditional IRAs having it.
Withdrawal activity is much lower among Roth IRA investors than traditional IRA investors. In 2016, only 4% of Roth IRA investors ages 25 or older made withdrawals, compared with 24% of traditional IRA investors.