From the February 2007 issue of Investment Advisor • Subscribe!

February 1, 2007

IRA Assets at $3.7 Trillion

Individual retirement account assets saw their third consecutive year of growth in 2005, reaching a record high of $3.67 trillion, according to a new report by the Employee Benefit Research Institute (EBRI). The report, which used data from the Internal Revenue Service and the Investment Company Institute, indicates that IRA assets now surpass assets in either defined contribution or defined benefit plans. While IRAs held $3.67 trillion in 2005, defined benefit plans held $2.15 trillion and defined contribution plans held $2.97 trillion.

Rollovers from employment-based tax-qualified retirement plans like 401(k)s--which EBRI says amount to $200 billion per year--fueled the growth in IRAs. Contributions to IRAs, the report notes, which annually amount to $40 billion-plus, pale in comparison to rollovers. The report also found that growth in IRA assets occurred mostly in mutual funds and self-directed brokerage accounts. The report also notes that while most IRA assets are in traditional IRAs--tax-deferred on contributions but taxed at withdrawals--the largest share of contributions is going to Roth IRAs (31%), which are taxed on contributions but tax-free upon withdrawal, and other IRAs.

However, relatively few Americans are taking advantage of this retirement planning option: only 10% of eligible taxpayers contributed to IRAs in each year from 2000 to 2002.

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