Plenty of IRA Action Amid 'Parked' Assets

ICI leads charge to assess active IRA contributors, a small but encouraging group.
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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.

"We saw they tend to stick with it," she says. "Sixty-three percent of those who contributed in 2007 made a repeat contribution in 2008. We also saw that more than half of them in 2007, 60%, contributed at the legal limit. So not only are they contributing, they are taking full advantage of the contribution amount appropriate for their age."

Of those who contributed to the limit in 2007, more than half did so as well in 2008.

"That is actually quite remarkable," Holden says. "If you look at 2008, it wasn't a very good year in terms of the economy or the stock market. For a person to stay at the limit in 2008, they also had to increase their contribution by at least $1,000 to meet the new, higher legal limits. Given that backdrop, this really shows the perseverance of this group of individuals who are likely using the IRA as their primary savings vehicle."

IRA investments, which totaled $4.2 trillion at year-end 2009, represent more than one-quarter of total U.S. retirement market assets and almost 10 percent of U.S. households' total financial assets.

Separate of ICI's ongoing studies, recent research indicates that the wealthy may be increasingly valuing the role IRAs play in their retirement strategy.

Earlier this year,

Cogent Research

studied 4,000 affluent investors and found that 31% had placed their assets in IRAs compared with 25% in workplace plans. Last year, seven firms increased the average portion of primary client assets in IRAs by 20% or more:

Fidelity Investments



(ING) - Get Report


Bank of America's

(BAC) - Get Report

Merrill Lynch,

Raymond James

(RJF) - Get Report




Wells Fargo

(WFC) - Get Report

Wells Fargo.

--Written by Joe Mont in Boston.

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