From the October 2007 issue of Investment Advisor • Subscribe!

IRA Rollovers Rebound

It looks as if there's a group of people with a significant amount of money that are in need of your services when it comes to IRA rollover accounts. Within the first half of the 2007 year, assets rolled over from other retirement accounts, primarily plans such as 401(k)s and 403(b)s, to IRAs stood at $489.3 billion, up 38% from the $353.4 billion rolled over in 2004. This increase marks a significant rebound from an 11% decline in assets rolled over from 2000 to 2004. Additionally, the amounts eligible for and transferred to IRA rollover accounts are expected to increase at a 10% to 12% annual rate over the next five years, according to a Spectrem Group report. "IRA rollovers have made very significant gains since 2004, not only increasing sharply but more than recovering from the decline they suffered between 2000 and 2004," said George Walper, president of Spectrem Group, in a statement.

Released in late August, the report--The IRA Rollover Market 2007--is based on a random sample of 763 Americans who needed to make a decision about what to do with a balance they had accumulated in a qualified retirement plan, whether due to retirement, a change in employment, or some other factor.

The better news is that, according to the Spectrem research, the IRA rollover market is concentrated among those with balances of $100,000 or more. In fact, over the past year, 7.34 million individuals had the opportunity to roll over retirement plan balances of $5,000 or more. Assets in these accounts totaled $489.3 billion. This is a concentrated market--those with balances of $100,000 or more account for just 23% of individuals but 67% of assets (see chart). Furthermore, the likelihood that a retirement plan balance will be rolled over to an IRA increases as the size of the balance grows, according to Spectrem. Also, the likelihood of the money being taken as a taxable withdrawal is highest among those with the smallest balances. "In conjunction with the end of the bear market earlier in the decade, participants--especially those with balances of $100,000 or more--have clearly become more willing to roll assets over," Walper added. "This presents new opportunities for providers and advisors."

Indeed, an existing relationship and the recommendation of a professional advisor are the two factors rated most important in selecting an IRA provider by the study's respondents. Among both baby boomers and those from the World War II generation, professional financial advisors are the most frequently used source of information in deciding what to do with their retirement plan balance, and two-thirds (67%) of individuals who rolled a balance over to a personal IRA say they had a face-to-face meeting with a professional advisor as part of the process. In addition, the involvement of an advisor becomes increasingly likely as account balances increase, the report found.

Respondents ranked the ease and convenience of establishing the account as one of the three most important factors as well. The investment performance track record of the firm and perceived size and financial strength also scored highly.

The report also found that retirees continue to account for the largest portion of assets available for rollover, but that proportion dropped to 38% in 2007 from 51% three years ago. Those consolidating retirement savings in a single account represented 22% of assets this year, up from 12% in 2004. Additionally, baby boomers account for the largest proportion of both individuals and assets in the rollover market although the World War II generation continues to account for a sizable proportion of assets. Gen X represents almost one-third of individuals but only 11% of assets.

Finally, Spectrem reports that while the proportion of individuals taking taxable withdrawals from their retirement plan has declined, the proportion of assets withdrawn increased in 2007. In earlier studies by Spectrem Group, one-third of individuals took a taxable withdrawal of all or a portion of their retirement balance. In 2007, this dropped to 25%. The proportion of assets, however, rose to 20% in 2007 from 13% in 2002 and 17% in 2000. Those most likely to take a taxable withdrawal are job changers, with balances of less than $50,000, and Gen Xers. Unfortunately, these are the groups that can least afford this choice, Spectrem points out in its analysis.


Staff editor Kara P. Stapleton can be reached at kstapleton@investmentadvisor.com.

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