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When it comes to Americans’ retirement savings habits, the glass is more than half full: Six out of 10 households in the US had some kind of formal, tax-advantaged retirement saving plan at the end of 2016. That is nearly 77 million people saving for retirement. But the empty part of the glass means Americans could save more and save more effectively. Here are five facts that dig deeper into the US retirement landscape, and remind you of importance of IRAs:
Fact 1: IRAs are an integral part of Americans’ retirement savings strategies.
More than one-third of US households have an IRA. Coincidentally, those accounts account for nearly one-third (31%) of all assets held in US retirement accounts. How much is that in actual dollars? A whopping $7.9 trillion.
Fact 2: Traditional IRAs still rule the retirement saving roost, but Roth IRAs are moving up the pecking order.
Of households that have an IRA, one in four owns a Traditional IRA. Clearly, retirement savers are attracted by the immediate tax savings (contributions are deductible when made, up to a limit set by the IRS), and the opportunity to see the value of their investments grow tax-deferred.
However, the Roth IRA, introduced in 1998, is gaining ground. Nearly 22 million households own Roth IRAs, representing 17% of US households. While contributions to Roth IRAs are taxed, increases in value and distributions are both tax-free.
Finally, more people are taking advantage of employer-sponsored IRAs. The rise in self-employment, the “gig economy,” and more engagement by small business could all be reflected in the nearly 6% of households that own SEP, SAR-SEP, and SIMPLE IRAs.
Fact 3: More people have IRAs than make contributions to them.
This is the sad fact in our list. While nearly all US households are eligible to contribute to IRAs, a mere 11% chose to contribute in the 2015 tax year. It's a shame that people are not taking full advantage of their IRAs, when in fact, the longer a household owns—and contributes to—an IRA, the more opportunity it has to increase in value.
Interestingly, Roth IRA owners were more likely (39%) to contribute than Traditional IRA owners (22%). Limits on the deductibility of contribution for savers who also have an employer-sponsored account and the growing number of households in which at least one person is retired may contribute to the lower participation level among Traditional IRA holders.
Fact 4: Age and income motivate many retirement savers.
There are no age limits on owning an IRA, but ownership figures start to climb at age 45. Among households headed by individuals age 45 to 54, 35% own IRAs. The number climbs to 69% for the 55-to-64 age group.
This makes sense for a couple of reasons. It’s human nature to start thinking—and saving—more for retirement as that date gets closer on the calendar. In addition, at that point in their careers, people are more likely to have changed jobs at least once, giving them retirement assets to transfer from one employer to the next.
Fact 5: More employment mobility means people rollover their nest eggs more often.
The days of working for one employer for your entire career are mostly a dim memory, and not one that a lot of people regret. Among households that own a Traditional IRA, more than half funded them in part with rollovers from a previous employer. And, 82% rolled over the entire account balance. Their reasons? They wanted a clean break from the previous employer (26%), didn’t want to pay taxes on an early withdrawal (19%), and wanted to consolidate their retirement nest egg in one place (15%).
Join the 77 Million
Do your part to increase the percentage of Americans savings for retirement. Better yet, do your part to make sure that you have the financial resources to live your dream retirement by opening a self-directed IRA. You can invest in a range of assets and be confident knowing you are in control of your investment decisions.
Request a free consultation today with one of The Entrust Group’s trained professionals.