For Many, IRA Withdrawals Are Well-Controlled

The new research from the Employee Benefit Research Institute (EBRI) finds that in accounts tracked by the EBRI IRA database, just under 21% of traditional and Roth IRA accounts showed a withdrawal in 2012. However, the overall IRA withdrawal percentage was largely driven by activity among traditional IRAs owned by individuals ages 70 ½ or older, EBRI says, a point at which the individuals are required by federal law to take distributions from their accounts.

For those at or above the required minimum distribution age, EBRI’s research shows the median withdrawal rate is close to the amount that is required to be withdrawn by law. Some accounts, however, showed significantly more in withdrawals. In contrast, among individuals under age 60, just 10% or fewer had a withdrawal in 2012, according to EBRI.

Looking at withdrawal patterns over the 2010 to 2012 period, the EBRI analysis suggests that the initial withdrawal rate for those in the 70 or older age group appears to be at a level that these individuals are likely to continue to take. The analysis found that among those at the age for required distributions who elected to take a withdrawal in all three years of the sample period, the median withdrawal rate was 5.1%.

“While the median withdrawal rates are encouraging in that they suggest that many individuals would be able to maintain the IRA as an ongoing source of income throughout retirement, further study is needed to see if these individuals are maintaining those withdrawal rates over longer periods of time,” notes Craig Copeland, EBRI senior research associate and author of the report.

Additionally, Copeland says the integration of the EBRI IRA data with data from employment-based defined contribution retirement accounts will allow for a better picture of what individuals who may have multiple retirement accounts do as they age through retirement. Such a research effort is currently underway as part of an initiative associated with EBRI’s Center for Research on Retirement Income (CRI), he adds.

As the EBRI report notes, a substantial portion of IRA assets originate in other tax-qualified retirement plans, such as defined benefit pension plans or and 401(k) plans, and are moved to IRAs through rollovers at job change (see “For IRAs, It’s All About the Rollover”). Thus, in many cases, IRAs are not only independent retirement savings vehicles, but repositories for assets built up in the employment-based retirement system, EBRI says.

The EBRI IRA Database is an ongoing project that collects data from multiple IRA plan administrators. The data for 2012 contains information on 25.3 million accounts owned by 19.9 million unique individuals, with total assets of $2.09 trillion. In this study, only withdrawals by individuals owning either traditional or Roth IRAs in the database are examined, a total of 17.7 million individuals with $1.97 trillion in assets.

Other findings in the new EBRI analysis include:

• Fewer than 21% of all traditional and Roth IRA accounts together had a withdrawal in 2012, including 24.3% of traditional accounts and 3.6% of Roth accounts.
• By age, 65.4% of the individuals taking a withdrawal were ages 65 or older, and just over half (51.1%) were ages 71 or older. At the same time, just 11.5% were younger than age 50. For traditional IRA owners taking a withdrawal, the age distribution followed the overall age distribution, with 67.6% ages 65 or older and 53.1% ages 71 or older.
• In contrast, among Roth IRA owners who took a withdrawal, 44.0% were younger than age 50 and only 9.8% were ages 71 or older. Among Roth owners who took a withdrawal, 35.6% had a balance of less than $10,000.

Copeland notes that, while withdrawals by individuals younger than traditional retirement age do occur, they are generally thought to be the result of the need for money either because of hardships or due to insufficient funds held elsewhere to finance major purchases—this despite the fact that the resulting tax and premature withdrawal penalties imposed are significant.

The full report, "IRA Withdrawals in 2012 and Longitudinal Results, 2010–2012," is published in the July EBRI Notes, online at www.ebri.org.