Traditional IRAs Hold Highest Account Balances

By Cyril Tuohy InsuranceNewsNet

By Cyril Tuohy

InsuranceNewsNet

According to new research from the Employee Benefit Research Institute (EBRI), in the United States, the total average individual retirement account (IRA) balance in 2011 was $70,915 and the average IRA individual balance – all accounts attributed to the same person – was $87,668. For the same year, the median IRA account balance was $19,619, and the median individual IRA balance was $23,785, the research also found.

Craig Copeland, EBRI senior research associate and author of the report, said the results show the importance of being able to measure the combined account balances belonging to one individual since many people may own more than one account.

Average retirement account balances are measured by dividing the total number of accounts into the total assets, but that calculation doesn’t account for the fact that many individuals have more than one retirement account.

Individuals with a traditional IRA originating from rollovers had an average balance of $110,918 and a median balance of $31,944, the research found. By contrast, Roth IRA owners had an average balance of $25,228 and a median balance of $11,344.

IRA rollover contributions from previous retirement plans such as a 401(k) or a 403(b), are one reason why traditional IRA accounts have higher balances than their more recent Roth IRA cousins, EBRI also said.

The Roth IRA, passed into law in 1997, is a much more recent retirement vehicle than the traditional IRA, created in 1974, and converting a traditional IRA or rolling over funds to a Roth IRA from a previous retirement plan is taxed. Roth IRAs allow for tax-free distributions.

An estimated 20.3 million U.S. households - 16.8 percent of all U.S. households - had a Roth IRA, and an estimated 39.4 million U.S. households - 32.5 percent of all U.S. households - held a traditional IRA, according to Investment Company Institute (ICI) data.

Roth IRAs are receiving the highest number of new contributions, but average contribution amounts are still higher in traditional IRA accounts, according to EBRI’s analysis of the data, which was collected from 20.5 million accounts administered by retirement plans on behalf of 16.6 million individuals.

Men had higher average and median IRA balances than women: $114,745 and $30,704 respectively, compared with $66,529 and $21,642 respectively, for women. The median IRA balance for men 70 or older was $72,971 compared with $42,926 for women the same age, the research found.

Annual contributions to IRAs are capped at $5,500 annually, and 48.9 million U.S. households - 40.4 percent - own at least one of five different IRA accounts. There was an estimated $5.4 trillion held in IRAs in 2012, up from $4.9 trillion in 2011, according to the ICI.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at Cyril.Tuohy@innfeedback.com.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.