May 23, 2013

Where Does the Money Go in IRAs?

Roth IRAs get most contributions, rollovers hold most money

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Where does the money go in individual retirement accounts?

It’s a salient question asked and answered by the Employee Benefit Research Institute in its latest analysis of the savings plans.

EBRI finds that most of the new contributions go into Roth IRAs, but most of the assets are held in traditional IRAs, where the money originated from a rollover from other tax-qualified retirement plans (such as 401(k) plans) and not from new contributions.

The latest report finds that 26% of Roth IRA owners contributed to their accounts in 2011, compared with just 6% of traditional IRA owners. For traditional and Roth IRAs combined, 13.2% received contributions that year.

The EBRI analysis also shows that individuals with a traditional IRA originating from rollovers had both the highest average and median balances of $110,918 and $31,944, respectively. Roth owners had lower average and median balances at $25,228 and $11,344.

IRAs hold more than 25% of all retirement assets in the United States. Overall, the total average IRA account balance in 2011 was $70,915, while the average IRA individual balance (all accounts from the same person combined, since many individuals own more than one IRA) was $87,668. The median account balance was $19,619, and the median individual balance was $23,785.

“The results show the importance of being able to measure an individual’s combined account balances to determine the potential total retirement savings he or she has by the aggregation of multiple accounts,” Craig Copeland, EBRI senior research associate and author of the report, said in a statement.

Among the other findings in the EBRI IRA report: 

  • Men had higher individual average and median balances than women: $114,745 and $30,704 for men, respectively, vs. $66,529 and $21,642 for women. The median balance for men reached $72,971 for those 70 or older, compared with $42,926 for women of that age. 
  • Of those individuals contributing, 47.2% contributed the maximum amount. Just over half (50.7%) of those contributing to a traditional IRA contributed the maximum, while 43.6% did so with a Roth IRA. 
  • While more than 1.6 million accounts received contributions and approximately 1.1 million accounts received rollovers in 2011 in the database, almost 13 times the amount of dollars were added to IRAs through rollovers than from contributions. 
  • More contributions were made to Roth accounts than to traditional IRAs in the database. However, at $3,879, the average contribution to a traditional account was higher than the $3,633 average contribution to a Roth account. Yet, a higher overall aggregate amount was contributed to Roth IRAs ($3.7 billion for Roths compared with $2.3 billion for traditional accounts).
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