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Dispatches IRAs

How IRAs Contribute to Retirement Savings in the U.S.

Forty-four percent of retirees reported using traditional IRA withdrawals to pay for living expenses. In addition, 40% of retirees chose to reinvest or save some of the funds from traditional IRA withdrawals in another account. 

by Anine Sus | February 2020

 

The Investment Company Institute looked into how individual retirement accounts (IRAs) contribute to retirement saving in the U.S. The study found that 36% of U.S. households owned IRAs in mid-2019. More specifically, 28% of U.S. households owned traditional IRAs. Of these traditional IRA-owning households, about six in 10 had accounts that had rollovers from previous employer-sponsored retirement plans. When prompted about why they chose to roll over their IRAs, 25% said they did not want to leave their assets behind, 17% said they wanted to preserve how taxes were applied to their savings in their account and another 17% said they chose to consolidate their assets.

The study found that rollover activity “has fueled recent IRA growth. The most recent available data show that households transferred $431 billion from employer-sponsored retirement plans to traditional IRAs in 2016.” It was also noted that 59% of U.S. households with traditional IRAs contained rollover assets. When rolling over their assets, traditional IRA-owning households researched their decision. Many chose to look at multiple sources of information—62% consulted a professional financial adviser, 38% used the information from their employers, 30% used the printed materials provided by their employers and 19% looked at online material from their employers.

When it came to withdrawals, the study discovered that in households where one person was retired, 44% “reported using traditional IRA withdrawals to pay for living expenses.” In addition, 40% of retired households that took withdrawals from traditional IRAs in the 2018 tax year chose to reinvest or save some of the withdrawn funds in another account; 13% used their withdrawals for home purchase, repair or remodeling; and 6% used their withdrawals for health care expenses. In contrast, traditional IRA-owning households that were nonretired used their 2018 tax-year withdrawals for different reasons: 17% were less likely to use their withdrawal for living expenses and “were six times as likely to indicate they used the funds for emergencies” (27%).

In comparing traditional IRA owners and Roth IRA owners, the study found that traditional IRA owners were less likely than Roth IRA owners to make contributions. According to the study, 36% of households with Roth IRAs in mid-2019 made contributions in the 2018 tax year. However, only 25% of households with traditional IRAs made contributions during the same period.

Source: “The role of IRAs in US households’ Saving for Retirement, 2019”; Investment Company Institute, December 2019.

Discussion

henriettah from KS posted over 6 years ago:

My advice to anyone thinking of investing in an IRA is don't. You could use a Roth, but the truth is that you had better be prepared for the government to change the rules at any time even after you have been retired and taking RMDs for years. The SECURE act passed in late 2019 changed the rules for inheritance of IRAs and will subject them to very high income tax rates when heirs are forced to take all the funds out within a ten year period. They were meant to be passed on to one's spouse, then children, grandchildren, etc. The rules were totally changed with no regard to those of us who had invested following the rules that had been in place since 1974. Neither AAII nor AARP made any effort to encourage congress to exempt people who had invested all their earnings lives under the rules in place since 1974.


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