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The Investment Company Institute (ICI) recently issued two reports on individual retirement accounts (IRAs) that describe the habits and behaviors of IRA investors. Titled “The IRA Investor Profile: Traditional IRA Investors’ Activity, 2007 – 2016” and “The IRA Investor Profile: Roth IRA Investors’ Activity, 2007 – 2016,” thereports analyzed data from The IRA Investor Database™, which tracks more than 17 million IRA investors. This information provides detail on the typical age of investors in both traditional and Roth accounts, how they begin saving in IRAs and the differences in asset allocations between owners of the two.
“Though there are significant differences between traditional and Roth IRA investors, both [types of accounts] provide savers with flexibility and diversification in their retirement savings options,” said Sarah Holden, ICI Senior Director of Retirement and Investor Research. “Traditional IRAs are a popular option for savers who are looking to roll over a workplace retirement plan account, while Roth IRAs are often started with contributions. Both IRAs have options that appeal to workers in various stages of their lifetime savings cycles and help millions of Americans prepare for retirement.”
Key findings from the ICI reports
The ICI found that 80% of traditional IRAs opened in 2016 were opened by rollovers from other tax-deferred retirement accounts. More than half of traditional IRA investors with an account balance at year-end 2016 had rollovers in their accounts. By contrast, 70% of new Roth IRAs in 2016 were opened through contributions.
IRA investors with contributions tend to persist with the contribution activity year-to-year. According to the research, more than 70% of traditional IRA investors who contributed in tax year 2015 also contributed in tax year 2016. The same can be said for 80% of Roth IRA investors.
Other major findings from the reports include:
- Roth IRA investors tend to be younger than traditional IRA investors. At year-end 2016, 31% of the former were younger than 40, compared with 16% of the latter. Only 26% of Roth IRA investors were 60 or older, compared with 41% of traditional IRA investors.
- At year-end 2016, 65% of Roth IRA assets were invested in equities and equity funds, compared with 53% of traditional IRA assets. For both types of accounts, allocations to target-date funds and balanced funds were similar: 19% to Roth IRAs and 18% to traditional IRAs. Allocations to bonds and bond funds (as well as money market funds) were lower in Roths than in traditional IRAs.
- Withdrawal activity is much lower among Roth IRA investors than traditional IRA investors. In 2016, only 4% of Roth IRA investors ages 25 or older made withdrawals, compared with 24% of traditional IRA investors.
401(k)Specialist, “How do Roth versus Traditional IRA savers compare?”, John Sullivan, Sept. 19, 2018
PlanSponsor, “ICI: IRAs continue to serve American savers well,” Lee Barney, Sept. 19, 2018
Financial Regulation News, “New ICI reports look at the investment habits of IRA investors,” Dave Kovaleski, Sept. 20, 2018
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Senior Analyst Retirement Research, Invesco Consulting
Senior Analyst Jon Vogler draws on extensive pension expertise to offer retirement thought leadership for Invesco. In addition to writing Invesco’s Retirement blog, he tracks legislative and regulatory developments and contributes as a writer and editor to a variety of retirement-related Invesco communications.
Prior to joining Invesco in 2008, Mr. Vogler spent more than 25 years in the research, writing, compliance and underwriting areas of the retirement services industry, including roles as a senior consultant at Mutual Benefit Life’s pension consulting firm and as a compliance manager in the Automatic Data Processing retirement services division.
Mr. Vogler earned the Fellow, Life Management Institute (FLMI) and Competent Toastmaster (CTM) designations. He earned a BA degree in history from Rutgers, The State University of New Jersey.