Savers Use IRAs to Consolidate Assets

According to data from the Investment Company Institute’s (ICI’s) annual survey of households owning IRAs, in May 2012, 45% of traditional IRA-owning households with rollovers in their traditional IRAs reported that consolidating assets was among the reasons for their rollovers, and 19% said it was the primary reason.  

The study paper, “The Role of IRAs in U.S. Households’ Saving for Retirement, 2012,” also found that taxes were forefront in savers’ calculations, with 67% of traditional IRA-owning households that have rollovers indicating that preserving the tax treatment of their accounts was a factor in their decision to make a rollover. Overall, 51% of traditional IRA-owning households reported that their traditional IRAs contained rollovers from employer-sponsored retirement plans, and these households tended to roll over the entire employer-sponsored plan balance.  

The data also indicates IRAs remain a steady component of the retirement system. In May 2012, 68% of U.S. households had retirement plans through work or IRAs. Forty percent of U.S. households owned IRAs.   

Traditional IRAs continue to be the most common type of IRA, with 33% of U.S. households owning them in May 2012. Ownership of Roth IRAs continued to edge up, and in May 2012, nearly 17% of U.S. households owned Roth IRAs. Nearly 8% of U.S. households owned employer-sponsored IRAs (SEP IRAs, SAR-SEP IRAs and SIMPLE IRAs).

(Cont’d…)

Thirty-two percent of U.S. households had IRAs and had employer-sponsored retirement plans—defined contribution (DC) plan accounts or defined benefit (DB) plan coverage—and 8% of U.S. households only owned IRAs. Twenty-eight percent of U.S. households reported having employer-sponsored retirement plans, but no IRAs. 

The study also found investment professionals play a significant role for traditional IRA-owning households. In 2012, three-quarters of traditional IRA-owning households held their traditional IRAs through investment professionals (e.g., full-service brokerage, independent financial planning firm, bank or savings institution, or an insurance company). Nearly seven in 10 traditional IRA-owning households have developed a strategy to manage assets and income in retirement, and 60% of those with a strategy said an investment professional was the primary source used to develop their plan. 

IRA contribution activity remained steady. Sixteen percent of U.S. households contributed to any IRA in tax year 2011, compared with 14% in tax year 2010. This means that 39% of IRA-owning households in May 2012 had made contributions to their IRAs in tax year 2011.  

Withdrawals from traditional IRAs continued to be infrequent and mostly retirement-related. Twenty-one percent of traditional IRA-owning households in May 2012 reported they took withdrawals from their traditional IRAs in 2011. More than three-quarters of the households with withdrawals reported that someone in the household was retired. The most commonly listed use of traditional IRA withdrawals was to pay living expenses, cited by 35% of those taking withdrawals.  

Traditional IRA owners generally plan to hold off on making IRA withdrawals until required to do so by law. Sixty-five percent of traditional IRA-owning households not making withdrawals in tax year 2011 indicated it was unlikely they would withdraw from their traditional IRAs before required at age 70.5. Living expenses and emergency expenses were the two most frequently mentioned expected future uses of IRA savings.  

The study report is at http://www.ici.org/pdf/per18-08.pdf.