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FRC: Deemed IRAs Can Increase 401(k) Assets

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NU Online News Service, March 5, 2003, 12:43 p.m. EDT – Building a “deemed individual retirement account” option into a 401(k) plan can increase asset growth 10% to 15% per year, according to a new report on the deemed IRA market by Financial Research Corp., Boston.

A plan sponsor that sets up a deemed IRA option agrees to let plan participants start IRAs through the plan, rather than going to outside banks, insurers or brokerage firms to start IRAs.

A plan sponsor must account for the deemed IRAs separately, but it can combine the assets with its other assets when managing plan investments.

FRC analysts conclude that promoting deemed IRAs is a great way to use annual contributions from middle-income workers to build plan assets, not just a way to retain rollover assets and attract contributions from high-income workers.