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Investors With Both 401(k) and IRA Save More Over Time: Study

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Many Americans maintain both a 401(k) and an IRA, especially as they grow older, according to a new report from the Employee Benefit Research Institute.

For these employees, the combined assets are, on average, 2.5 times greater than an average 401(k) balance, and the median balance is some 3.5 times larger than the median 401(k) balance.

The study found that many individuals who had both a 401(k) plan and an IRA during the seven-year study period did not maintain both in all years even though doing so would have resulted in significantly higher balances. Some individuals closed accounts when they changed jobs, while others rolled over money to other accounts as they retired.

This, in turn, affected the amount of assets accumulated by those who had both account types relative to those who had only one account type. The average balance of employees who had 401(k) and IRA balances in every year of the study was twice as high relative to the average balance of those with both at only some point during the study.

“This research points to the importance of understanding multiple sources of retirement assets rather than just one source,” Craig Copeland, senior research associate at EBRI and author of the report, said in a statement.

Copeland said this was the case both with regard to aggregate retirement assets and the interaction of different account types within the system.

The study combined the EBRI/ICI 401(k) database of 27 million plan participants with the EBRI IRA database of 19 million account holders to provide perspective on the relative amount of assets held by those having both account types, allowing for a more accurate picture of total retirement assets across individuals.

Key Findings

The ratio of the average combined 401(k) plan and IRA balance — of those who had both each year of the study — to the average 401(k) plan balance — of all of those who had a plan each year — was 2.48 at the end of the seven-years study.

In the study’s final year, the ratio of the average combined balance compared with the average IRA balance was 2.53.

EBRI found that employees who had just a 401(k) plan could generate as much in balances as they could accumulate in both account types when they maintained them both only at some point during the period studied.

Although 401(k) plan assets made up the bulk of assets of those who had both account types throughout the study, owners/participants who maintained both only at some point were more likely to have had an IRA for more years than a 401(k) plan, according to the study.

The average holding period for an IRA was 5.5 years, compared with four years for a 401(k) plan.

“This report also shows the potential of what can be accumulated in total if workers are able maintain both account types throughout their working lives — or large portions of them,” Copeland said.

“Furthermore, it shows that this potential is not always met as workers change jobs, stop contributing or take money out of or close their accounts, resulting in retirement asset leakage.”

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