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Investors Taking IRA Contributions to the Max: ICI Report

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Roughly half of investors making contributions in 2013 in traditional individual retirement accounts contributed up to the new legal limit, the Investment Company Institute reported Tuesday.

The traditional IRA contribution limit in 2013 rose to $5,500 for taxpayers younger than 50 and $6,500 for those 50 or older, ICI said in “The IRA Investor Profile: Traditional IRA Investors’ Activity, 2007-2013.” Previously, those respective limits were $5,000 and $6,000.

Strikingly, the study suggests that retirement savers who contribute to traditional IRAs are paying serious attention to the rules governing their accounts, said Sarah Holden, ICI’s senior director of retirement and investment research.

“We found that in 2013, when contribution limits for traditional IRAs were raised for the first time in five years, nearly half of traditional IRA contributors reached the new legal limit,” Holden said in a statement.

There has been a shift in employer-provided pensions from defined benefit to defined contribution plans such as 401(k)s, the National Bureau of Economic Research reports, noting that a comfortable retirement rests on the “three-legged stool” of Social Security, employer-provided pensions and personal savings.

Frequently, those personal savings come in the form of traditional or Roth IRAs. And rollovers from employer retirement plans remain the main source of new IRAs, ICI says. About two-thirds of new traditional IRAs in 2013 were opened with rollovers.

Last year, in good news for advisors, research firm Cerulli Associates reported that IRA rollovers were up 7% in 2012, and that they are projected to keep on rising. Dually registered and registered investment advisors (RIAs) are the “next biggest channels” due to the fiduciary requirements necessary to be a top advisor, Cerulli said.

According to the ICI report, equity investments have rebounded, rising to 72.6% in 2013 from 68.3% the year before, among “consistent” traditional IRA investors aged 25 to 59.

“With that increase, these investors’ aggregate allocation to equity holdings—including equities, equity funds, and the equity portion of balanced funds—was almost back to their equity allocation at the end of 2007,” ICI reported.

But not all investors are consistent. The downside in ICI’s report comes from the fact that only 8.7% of traditional IRA investors actually contributed to their accounts in tax-year 2013.

“This low rate is attributable to a number of factors, including that many retirement savers are meeting their savings needs through employer-sponsored accounts, and rules limit the ability to make deductible contributions to traditional IRAs,” the report said.

IRAs comprise the largest pool of assets in the U.S. retirement market, at $7.6 trillion at the end of the first quarter of 2015, and the incidence of IRA ownership increases with age due to the life-cycle effects on saving, according to ICI. IRA ownership is greatest among investors ages 45 to 64.

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