IRAs Serving Their Purpose as a Savings and Rollover Vehicle

$7.4 trillion is currently invested in individual retirement accounts, the ICI reports.

Individual retirement accounts (IRAs) are serving their purpose as both a savings and a rollover vehicle, according to the Investment Company Institute (ICI), which has released details about the demographics and the 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,” says Sarah Holden, senior director of retirement and investor research at the ICI.

Roth IRA investors tend to be younger, which the 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 Roth IRA investors were under the age of 40, whereas only 16% of traditional IRA investors are 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.

IRA investors tend to be committed to making contributions, the ICI says, noting that more than 70% of those who made a traditional IRA contribution in 2014 did so again in 2015. Among Roth IRA investors, that percentage rose to 80%.

Roth IRA investors gravitate more toward equities than traditional IRA investors, with 66% of Roth IRA assets in 2015 invested in equities. Roth IRAs also had less allocated to bonds (7%) than traditional IRAs (16%). ICI says this is likely due to the fact that Roth IRA owners are younger than traditional IRA owners. This is probably also why only 4% of Roth IRA owners made withdrawals in 2015, compared with 24% of traditional IRA owners.