Opportunity Exists to Grow IRAs Through Plan Rollovers

The engine of growth for traditional IRAs is being powered by qualified plan rollovers and not new contributions, according to a new data analysis from the Washington, DC-based Employee Benefits Research Institute (EBRI).

Rollovers have been growing each year, EBRI said: there was $204.4 billion in 2002 rollovers to traditional IRAs, $187.8 billion in 2001, and $225.6 billion in 2000. Contrarily, new contributions to IRAs, at the $40 billion-plus level, “pale in comparison,” the group said.



According to the analysis, the annual percentage increases in IRA assets for 2003 to 2005 of 18.1%, 11.5%, and 9.9%, respectively, are comparable with the growth rates in the 1990s. Not only that, but 2005 was only the second year since 1981 when a less-than-double-digit percentage increase occurred, with the exception of the three years of declines from 2000 to 2002, according to EBRI.



The IRA asset expansion was mostly centered in mutual funds and self-directed brokerage accounts. EBRI reported that mutual fund assets increased from $1.052 trillion in 2002 to $1.668 trillion in 2005 while assets in self-directed brokerage accounts were up from $949 billion to $1.389 trillion over the same period



Aggregate IRA assets are larger than those accumulated in either private-sector defined benefit plans or defined contribution plans. In 2005, when IRAs held $3.67 trillion dollars, DB plans held $2.15 trillion and DC plans held $2.97 trillion.



Of the $2.5 trillion in IRAs in 2002, $2.3 trillion was in traditional IRAs, the EBRI data showed. This represents more than 90% of the IRA assets. Roth IRAs amounted to $77.6 billion, and all other IRAs held $133.4 billion in 2002.Roth accounts represent just over 3% of all IRA assets, while other IRAs account for slightly more than 5%.



Furthermore, most of the IRAs assets are in traditional IRAs, but the largest share of contributions is going to Roth IRAs and other IRAs. Finally, despite the continued growth in IRA assets and much discussion of the importance of saving for retirement, only 10% of taxpayers eligible to contribute to an IRA actually do so, according to the analysis.



The EBRI IRA asset report is here.