IRAs Have Gained Importance in Individuals' Retirement Plans

Different types of IRAs have increasingly grown as a significant component to an individual’s retirement plan.

In mid-2022, IRA assets represented 11% of all household assets, three percentage points more than 20 years ago, according to the IRA Owners Survey conducted annually by the Investment Company Institute. More than two of five U.S. households (55 million) owned IRAs. A big part of these IRAs are rollovers from employer-sponsored retirement plans.

IRA ownership increases with age and household income. Ownership is higher for those who are 35 and older and thus more attuned to retirement savings needs. As household income increases, IRA ownership increases as well. This is likely because lower income households prioritize short-term expenses over retirement contributions.

Rollovers from employer-sponsored retirement plans to traditional IRAs have driven their recent growth. Households transferred a total of $536 billion from employer-sponsored retirement plans to traditional IRA accounts in 2019. There are several reasons for rolling over to a traditional IRA, such as not wanting to leave assets with former employers, consolidating assets and continuing to shelter savings from taxes.

However, few U.S. households make contributions to their IRAs. In 2021, only 36% of all U.S. households made contributions to their traditional or Roth IRA. Lack of contributions can be due to confusion over regulations, eligibility requirements or the need to first contribute to an employer-based savings plan.

Since a withdrawal from a traditional IRA before the age of 59½ is subject to a 10% penalty, IRA withdrawals are mostly made by retirees. Forty-eight percent of retired households owning traditional IRAs in mid-2022 did not take out withdrawals in 2021.

Owning an IRA generally means that an individual already has a retirement strategy. Seventy-seven percent of traditional IRA owners consulted a financial adviser to help create their retirement strategy. It is important to remember that traditional IRAs are not the only component for a good retirement plan.

“The Role of IRAs in US Households’ Saving for Retirement, 2022,” ICI Perspective, February 2023, Vol. 29, No. 1.