EBRI Examines Trends In Ownership Of IRA Assets
In an article published in the January EBRI Notes, the Employee Benefit Research Institute (EBRI) examines the level of and trends in assets of individual retirement accounts. The article is entitled “IRA Assets, Contributions, and Market Share.”
In the article, EBRI initially observes, “Individual retirement accounts are an important retirement account vehicle both for building wealth and for storing wealth built up in employment-based retirement plans. IRAs account for a sizable portion of the assets held by Americans in tax-preferred plans designed for retirement, surpassing the assets held in either private-sector defined contribution plans (typically 401(k)-type plans) or defined benefit plans. Furthermore, IRA assets have continued to grow in importance and are likely to become the single largest source of retirement assets outside of Social Security for private-sector workers in retirement.”
According to EBRI, IRA asset levels increased continuously from 1981 through 1999 before declining for three consecutive years from 2000 through 2002. These assets peaked at $2.65 trillion in 1999, before falling back to $2.53 trillion in 2002. However, in 2003, the IRA asset level increased to a then-new historical high of $2.99 trillion, before rising further in 2004 to $3.34 trillion. In 2005, the assets again increased to a new high of $3.67 trillion. This data indicates that the significant growth trend that total IRA assets experienced for the past two decades was interrupted only by the stock market retrenchment from 2000-02.
Other trends in IRA ownership identified by EBRI include the following:
Growth rate. The annual percentage increases in IRA assets for 2003–05 of 18.1%, 11.5%, and 9.9%, respectively, are comparable with the growth rates in the 1990s, with the two most recent years being at the low end of the percentage increases. Furthermore, 2005 was only the second year since 1981 when a less-than-double-digit-percentage increase occurred, with the exception of the three years of declines from 2000-02.
Changing market share. The growth in IRA assets occurred mostly in mutual funds and self-directed brokerage accounts. Mutual fund assets increased from $1.052 trillion in 2002 to $1.668 trillion in 2005, and assets in self-directed brokerage accounts increased from $949 billion to $1.389 trillion over the same period. In comparison, assets held in banks and thrifts and in life insurance annuities also increased, but by a much smaller amount. Consequently, the share of the total assets held in mutual funds grew by about three percentage points over the 2002–05 period, pushing assets held in banks and thrifts to their lowest levels ever. Mutual funds accounted for the largest share of IRA assets in 2005.
IRA and private retirement plan asset comparison. Total IRA assets are larger than those accumulated in either private-sector defined benefit plans or defined contribution plans. In 2005, when IRAs held $3.67 trillion, defined benefit plans held $2.15 trillion and defined contribution plans held $2.97 trillion. The amount of assets in IRAs above the amount in defined contribution and defined benefit plans has increased each year since 2001, when IRAs held $2.62 trillion, compared with $2.24 trillion in defined contribution plans and $1.81 trillion in defined benefit plans.
Aggregate deductible contributions. Tax-deductible contributions to traditional IRAs increased from $7.407 billion in 2001, to $9.462 billion in 2002, to $10.029 billion in 2004—the highest amount since before 1990 This reversed a four-year decline from 1998 through 2001 in the dollar value of IRA deductions. It also coincides with the first three years of the increases in the contribution limits to IRAs enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001.
IRA assets and contributions by IRA type. Of the $2.5 trillion in IRAs in 2002, $2.3 trillion in assets were in traditional IRAs. This represents more than 90% of the total IRA assets. Roth IRAs amounted to $77.6 billion, and all other IRAs held $133.4 billion in 2002. Thus, Roths account for slightly more than 3% of all IRA assets, while other IRAs account for slightly more than 5%.
In contrast, of the $42.3 billion in IRA contributions in 2002, only $12.4 billion went to traditional IRAs, both deductible and nondeductible. This accounts for 29.3% of all IRA contributions. Roth contributions represented 31.2% of the contributions, while other IRA contributions’ share was 39.5%. The factor that continues to drive the asset growth of traditional IRAs relative to the other types of IRAs is rollovers from other tax-preferred plans, rather than new contributions. In 2002, rollovers to traditional IRAs amounted to $204.4 billion, following rollover amounts of $225.6 billion in 2000 and $187.8 billion in 2001.
Reprinted with permission. © CCH
In an article published in the January EBRI Notes, the Employee Benefit Research Institute (EBRI) examines the level of and trends in assets of individual retirement accounts. The article is entitled “IRA Assets, Contributions, and Market Share.”