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Plenty of IRA Action Amid 'Parked' Assets

BOSTON (TheStreet) -- Only about one out of 10 traditional individual retirement account investors contribute in any given year, according to recent data. But Sarah Holden, senior director of retirement and investor research for the Investment Company Institute, says that statistic belies some good news and sounds subpar only when compared with 401(k) activity.

"When you look at a 401(k) plan, you are typically are looking at active participants who hold a plan through their employer," she says. "When you go and try to do the parallel calculation with traditional IRAs, what you run into is this wide cross-section of investors who have rolled over employer-sponsored plan assets from a previous job and parked them. It is not that they are not saving for retirement; it is highly likely they have a plan at their new employer and are contributing there. When making comparisons of what kind of contribution activity goes on in a traditional IRA to a 401(k) or other direct contribution plan, from the onset you have his commingling of parked people that just confounds it."

These static assets illustrate the need for researchers to look at behavior patterns as well as inflows when evaluating IRAs and their role in retirement savings. To that end, ICI, the national association of U.S. investment companies, has teamed with the Securities Industry and Financial Markets Association on the IRA Investor Database, an effort to combine and mine both avenues of research.

Launched in August, the database collects account-level data of more than 10 million individual retirement accounts. The hope is that it will provide unique insights into IRA investor demographics and activities, serving as a supplement to existing household surveys and IRS tax data. A series of reports, spread over the next few months, will focus separately on rollovers, asset allocations, withdrawals and Roth IRAs.

The first report focuses on traditional IRA contribution activity in 2007 and 2008.

A small share of individuals contributes to traditional IRAs in any given year. In 2007, 11.2% of traditional IRA investors made contributions. In 2008, 9.4% contributed. IRA investors who made a rollover were much less likely to contribute in that same year. Similarly, those who made a withdrawal were less likely to contribute.

Holden says that while contributions appear modest when compared with other tax-preferred saving vehicles, keeping in mind the volume of parked assets is important. The good news is that those who do are proving to be quite dedicated.

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