When IRAs were created in 1974 under the Employee Retirement Income Security Act, one big motivator was to give workers who lacked access to a retirement plan at work a way to save for retirement in a tax-deferred account.
But according to a new brief from the Center for Retirement Research at Boston College, that’s not what’s happened. Instead, most of the new money flowing into IRAs these days comes from higher-income people, who often also have a 401(k) plan.
The less well off who lack opportunities to save in an employer-sponsored plan, for whom IRAs were originally intended, are instead largely using IRAs as a parking place for rollovers from employers that they’ve left behind on the way to another job.
While IRAs hold nearly $8 trillion, according to the Squared Away blog—nearly half of all the money held in the U.S. retirement system, including employer pension funds and 401(k)s—the study set out to discover who among IRA holders are actually benefiting from the tax breaks the accounts were intended to provide to people who lacked retirement plans.
The answer, unsurprisingly, was not the people who lacked retirement plans.