In another superb usnews.com column, Emily Brandon takes a close look at how much money workers are putting in IRAs. Her piece:
“The average balance tops $100,000. Individuals held an average of $119,804 in their IRAs in 2013, according to an Employee Benefit Research Institute analysis of 25.8 million IRAs holding $2.46 trillion in assets. And the top 12 percent of savers have over $250,000 stashed in IRAs, up from 9 percent in 2010. ‘The increases found in the average balances in 2013 are likely to continue, as is the importance of IRA assets for individuals during retirement’, says Craig Copeland, a senior research associate at EBRI and author of the report. However, the median (mid-point) IRA balance was just $32,179 in 2013. And 45 percent of those with IRAs have less than $25,000 in their accounts. Unsurprisingly, IRA balances increased with age, from a median of $3,708 for those under 25 to $75,627 for people ages 70 or older.
“Many people max out their IRA. The average IRA contribution increased from $3,335 in 2010 to $4,145 in 2013. And 43 percent of investors who saved in an IRA contributed the maximum possible amount in 2013. The proportion of IRA account owners contributing the maximum peaked at 53 percent in 2012 before falling in 2013, likely due to an increase in the IRA contribution limit. The IRA contribution limit is $5,500 in 2015, and increases to $6,500 for those ages 50 and older.
“Most contributions originate with 401(k)s. Much of the money held in IRAs was first saved in workplace retirement plans, and then rolled over to an IRA. ‘With growing 401(k) plan balances and IRAs being a popular destination for 401(k) assets when people change jobs or retire, the amount of income derived from IRAs will grow significantly’, Copeland says. The average rollover to a traditional IRA was worth $96,660, and the median rollover amount was $27,967 in 2013. Three-quarters of rollovers to IRAs were worth more than $5,000, and 9 percent of workers shifted over $250,000 to an IRA. EBRI found that 14.5 times more dollars were deposited in IRAs via rollovers than contributed directly to IRAs.
“Roth IRAs are more popular than traditional IRAs. More contributions were made to Roth IRAs than traditional IRAs in 2013. You can’t claim a tax deduction for Roth IRA contributions, but withdrawals in retirement from accounts at least five years old are tax free. Roth accounts are especially popular with young workers. Nearly a quarter (24 percent) of Roth IRA contributions are made by investors ages 25 to 34, compared to 7.5 percent of traditional account deposits by people the same age. The average Roth IRA contribution of $4,009 is smaller than the $4,338 average contribution to traditional IRAs. However, the $6 billion contributed to Roth IRAs is substantially more than the $4.61 billion deposited in traditional IRAs due to more people contributing to Roth accounts than traditional IRAs.
“IRA balances have largely recovered from the recession. The average IRA balance declined from $91,864 in 2010 to $87,668 in 2011, but then climbed back up to $119,804 in 2013. That’s a 30 percent increase from 2010 to 2013, which reflects both investment gains and new contributions. The median account balance dipped from $25,296 in 2010 to $23,785 in 2011 before increasing to $32,179 by 2013. “