ICI: IRAs a Major Success 30 Years Later

That was a key conclusion of a  new research paper on IRAs by the Investment Company Institute (ICI) The paper asserted that Americans have responded to the twin Congressional goals of encouraging those without an employer-sponsored retirement plan to save for their later years as well as to provide a place for mobile workers to preserve retirement assets between jobs through rollovers. Asserted ICI: “The past 30 years clearly show that the IRA has successfully promoted and sustained retirement saving among many Americans.”

By the end of 2003, IRAs had $3 trillion in assets and were the largest piece of the $11.6 trillion US retirement market with IRAs representing one of four retirement dollars, the ICI said. Not only that, ICI pointed out, but:

• 45.2 million US households – or 40.4% of all such households – owned an IRA in 2004
• The typical IRA-owning household keeps more than 20% of its assets in IRAs.

Generally, ICI said, household IRA decisionmakers are more likely to hold college degrees, to be married, employed and older. The median income of an IRA-owning household was $62,500 in mid-2004, compared with $35,000 for those not owning an IRA. The median age for IRA owners was 49 in 2004 and equally likely to be employed or retired from their lifetime occupation, the group said. Finally, the typical IRA-owning household has a $24,000 balance, ICI said.

As of 2004, ICI said IRA owners had 65% of their assets in mutual funds (including more than half in equity funds), 37% held individual equities, 31% held annuities, 27% had bank deposit accounts and 16% held individual bonds.

In mid-2004, about a third of traditional IRA owners and a quarter of Roth IRA owners kept those assets at full-service brokerage firms while 30% of traditional IRA owners and 26% of Roth owners opted instead for mutual fund companies.

The history of IRAs also proves they have been a success at the second of the two original legislative goals – offering a place to preserve assets for job-swapping Americans, the research report said. The savings vehicles have also had the added benefit of helping Americans segregate those assets as being for their after-work years so they don’t get dipped into for other reasons.

According to ICI data, rollovers were $114 billion in 1996, peaked at $226 billion four years later and were $187 billion in 2001 with workers of all age groups and income levels making the move.

“Individuals’ strong response to the rollover provision also underscores the importance of simplicity in IRA design,” the ICI researchers wrote. “IRAs not only offer workers a way to maintain the tax advantage of assets accumulated in their employer-sponsored plans through rollovers at job change or retirement. By specially earmarking the assets for retirement, IRAs help workers make a commitment to preserving those assets for that goal.”