IRA Owner Behavior Trends From EBRI Show Plan Rollovers Still Strong
Individual retirement accounts (IRAs) hold one-quarter of all retirement plan assets in the U.S., yet only a small percentage of IRA owners contribute to their IRAs each year, according to an analysis of IRA data by the Employee Benefits Research Institute (EBRI).
Released in a January 10, 2018, Issue Brief, EBRI analyzed IRA data from 2010 through 2015 using its proprietary EBRI IRA Database that collects data from various IRA administrators, and contains information on 27.9 million accounts with assets of $2.76 trillion. EBRI’s analysis studied IRA owner behaviors and trends in account balances, contributions, withdrawals, and asset allocation among a group of consistent account owners and also a cross-section group.
The EBRI study analyzes the behaviors of these two sample groups.
1. Cross-sectional account owners: A full sampling from the database, which also includes the new and former IRA owner fluctuations during the six-year period (2010 through 2015).
2. Consistent account owners: IRAs that have been held in the EBRI database continuously for six years (2010 through 2015), showing trend results that are not affected by the annual fluctuation of new and former IRA owners.
Traditional and Roth IRA Account Balances
Average IRA balances generally increase each year. EBRI’s analysis of a cross-section of account owners—the overall group—found that the average account balance for this group increased 36.1 percent from 2010 to 2015. The average account balance at year-end 2015 was $125,045, up from $91,864 at year-end 2010. This included increases in each year, except for slight decreases in Traditional IRA balances in 2011 and in 2015. Roth IRA balances increased every year.
The average account balance among the consistent account owner group also increased from 2010 to 2015. As would be expected, the average account balance for these owners is larger than the cross-section group. The consistent group average account balance increased from $99,603 at year-end 2010 to $146,513 for 2015, a 47.1 percent increase. This increase occurred among all age groups, except for IRA owners age 70 and older. This is understandable, since those over age 70½ must take annual distributions from their Traditional IRAs. And it increased among all account types, except for Traditional IRAs, which had slight decreases in average account balances in 2011 and 2015.
The average Traditional IRA balance for the consistent account group in 2015 was three times higher than the average Roth IRA balance in 2015, but the growth rates for Roth IRA balances were more than double that of Traditional IRAs from 2010 to 2015. The median Roth IRA increase was 67.7 percent from 2010 to 2015, compared to 31.6 percent for Traditional IRAs. The higher growth rate for Roth IRAs stems in part from new contributions and conversion contributions, and the lack of required minimum distributions, which do not apply to Roth IRAs.
As expected, average Roth IRA balances increased each year from 2010 to 2015 among all age groups, even for owners age 70 and older. This, too, is understandable, because there is no requirement for distributions from Roth IRAs (except by beneficiaries). More than half of those age 70 and older had average account balance increases from 2010 to 2015, meaning that the earnings on their accounts were greater than their withdrawals.
Contributions, With Some Surprises
Even though IRAs hold one-quarter of all retirement plan assets in the U.S., EBRI’s database shows that only a small percentage of IRA owners make annual contributions to their accounts. This reflects the fact that most IRA assets originate from employer-sponsored retirement plan rollovers. For the cross-section account owner group, the percentage of individuals who contributed to their IRAs increased in the six-year period—14.1 percent contributed in 2015, up from 12.1 percent in 2010. Of those owners contributing, 54.4 percent made the maximum allowable contribution in 2015, up from 43.5 percent in 2010. Roth IRA owners had higher contribution rates, with 26.4 percent of Roth IRA owners contributing to their accounts in 2015, compared to 7.1 percent of Traditional IRA owners.
With much larger average account balances and higher growth rates, one would expect that the likelihood of contributing to an IRA would be higher among consistent account owners, in part because they held an IRA each year from 2010 through 2015. But EBRI’s analysis found the exact opposite. Among consistent account owners, 13.0 percent contributed to IRAs in 2015, a decrease from 14.7 percent in 2010.
Surprisingly, this trend is consistent for both Traditional and Roth IRAs. Among consistent account owners, the percentage of Traditional IRA owners who contributed to their IRAs decreased to 5.5 percent in 2015, from 6.2 percent in 2010. The percentage of Roth IRA owners who contributed to their IRAs decreased from 19.7 percent in 2015, from 25.9 percent in 2010.
EBRI’s analysis also found that among consistent account owners, Roth IRA owners were much more likely to contribute to their IRAs each year. The analysis shows 9.7 percent of Roth IRA owners contributed each year (2010 through 2015) and only 1.8 percent of Traditional IRA owners contributed each year. Roth IRA owners age 30 to 34 were most likely to contribute to their IRAs, with 15 percent in this age group contributing each year. This percentage declined as the age of the Roth IRA owner increased, with just 2.2 percent of Roth IRA owners age 70 and older contributing each year.
The EBRI study also provided withdrawal trends analysis for the consistent account owner group. The number of consistent account owners taking withdrawals from their IRAs increased by more than 60 percent from 2010 to 2015. In 2010, 14.6 percent took withdrawals from their IRAs, and 23.8 percent did so in 2015.
The likelihood of taking a withdrawal increased with age for those 30 or older, with the largest increase among owners over age 70. Of the consistent account owners ages 71-79 in 2015, 34.4 percent took withdrawals in 2010, compared to 80.5 percent in 2015. This difference primarily is a result of these individuals reaching the age that required minimum distributions must commence from Traditional IRAs. And, more than one-quarter of IRA owners ages 71 or older withdrew more than the required minimum distribution amount in each year from 2011 through 2015. Although many IRA owners are taking more than required, the rate at which these IRA owners are withdrawing is not so great as to be unsustainable as the individuals continue to age.
EBRI’s analysis also found that almost all of the increase in withdrawal activity came from Traditional IRAs. The percent of consistent account owners who took withdrawals from their Roth IRAs increased only slightly, from 2.6 percent in 2010 to 3.9 percent in 2015.
IRA Owners Investing
The percentage of assets allocated to equities increased from 2010 to 2015, while the amounts allocated to balanced funds and bonds was relatively constant.
EBRI’s analysis of the cross-section account owner group found that the percentage of assets allocated to equities increased from 45.7 percent in 2010 to 54.7 percent in 2015. During the same time period, assets allocated to balanced funds remained constant in a narrow range of 9.5 percent in 2010 to 10.9 percent in 2015. The percentage of assets allocated to bonds held steady at near 15 percent in 2015.
Among the consistent account owner group, the percentage of assets allocated to equities increased from 44.5 percent in 2010 to 52.6 percent in 2015. During the same time period, assets allocated to balanced funds remained constant in a narrow range of 9.0 percent in 2010 to 10.3 percent in 2015. The percentage of assets allocated to bonds fell to 13.1 percent in 2015, down from 15.1 percent in 2010.
Some Go to Extremes
EBRI’s analysis also found that a significant number of consistent account owners had extreme asset allocations. EBRI found that 27.1 percent of IRA owners had no assets held in equities in 2010 and 2015, while 16.1 percent of IRA owners had their entire account balance held in equity investments. The majority of consistent account owners had either 0 percent or 100 percent equity allocation in at least one year during the period, except for those account owners with balances of $100,000 or more. EBRI’s analysis also found that the percentage of IRA owners with extreme allocations declined as age and account balances increased.
The Employee Benefit Research Institute is a private, nonpartisan, nonprofit research institute based in Washington, DC, that focuses on health, savings, retirement, and financial security issues. See EBRI’s January 2018 Issues Brief, “Individual Retirement Account Balances, Contributions, Withdrawals, and Asset Allocation Longitudinal Results 2010–2015” for more information.