The New Finance of Longevity

Average IRA Balance Grew More Than 22 Percent From 2013 Through 2017

But data raise concerns around extreme allocations

New research from the Employee Benefit research Institute reveals that despite growth, there are still concerns. Access the full report here.

According to new research from EBRI, the average individual retirement account (IRA) balance increased from $93,441 in 2013 to $114,383 in 2017, an increase of 22.4 percent. The average contribution to a Traditional or Roth IRA slightly increased from $3,880 in 2013 to $3,913 in 2017. The Issue Brief, “EBRI IRA Database: IRA Balances, Contributions, Rollovers, Withdrawals, and Asset Allocation, 2017 Update,” is the ninth annual cross-sectional analysis of the EBRI IRA Database. It includes results on the distribution of individual retirement account (IRA) types and account balances, contributions, rollovers, withdrawals, and asset allocation in IRAs for 2017, the latest data available.

Despite the account growth, there is room for concern. EBRI also found that 24.4 percent of IRAs had less than 10 percent in equities, representing so-called “extreme allocations.” Furthermore, 16.4 percent of IRAs had more than 90 percent of their assets in bonds and money. In particular, there was high money concentration in accounts with balances of less than $5,000, of which many were a result of automatic rollovers from 401(k) plans that are defaulted into money — the result of the safe harbor provisions for the forced cash-outs of 401(k) plans with balances of $1,000 up to $5,000. As prior EBRI research has shown, the assets typically stay where they are initially allocated. Consequently, the allocations in these IRAs end up staying in money, as result of the default investment and not a result of the actions of the account owners.

Assets Greatly Outpaced Contributions

Importantly, assets from rollovers to IRAs in 2017 greatly outpaced total contributions, regardless of the source. The average and median rollovers to a Traditional IRA in 2017 were $94,879 and $14,454, respectively, while the average contribution to a Traditional IRA in 2017 was $4,163. Overall, just over 12 percent of all accounts in the database received a contribution in 2017, averaging $3,913. Roth IRAs were more likely to receive a contribution than Traditional IRAs (26.6 percent vs. 5.7 percent). EBRI will be producing additional research addressing this topic in the coming months.

The study also assessed withdrawal activity. Just over 21 percent of individuals owning a Traditional or Roth IRA took a withdrawal in 2017. However, only 3.3 percent of individuals with a Roth IRA took a withdrawal and 25.6 percent of individuals with a Traditional IRA took a withdrawal. Upon closer examination, EBRI finds that the overall IRA withdrawal percentage was largely driven by required minimum distribution (RMD) rules. As with the force-out safe harbor, RMDs appear to drive behavior in IRAs, with only one-quarter of IRA owners ages 71 or older found to have withdrawn an amount from their Traditional IRA in excess of their RMD.

“This study demonstrates the power of defaults and signaling in influencing behavior in IRAs,” said Craig Copeland, EBRI Senior Research Associate and author of the report. “The asset allocation in accounts with balances less than $5,000 seem to be largely driven by the default investment of forced cash-outs. Furthermore, individuals who don’t know how much to withdraw from their IRA in many instances are simply defaulting to the RMD, assuming that is the ‘correct’ amount to withdraw.”

The asset allocation in accounts with balances less than $5,000 seem to be largely driven by the default investment of forced cash-outs...

Excerpts from the Report IRA Balances, Contributions, Rollovers, Withdrawals, and Asset Allocation

Balances

  • The average IRA account balance in the database was $114,383 at year-end 2017. The average IRA individual balance (combining all accounts owned by the individual) was $141,144.
  • Average IRA balances differed significantly by the IRA type: Roth IRAs had the lowest average balance, while Traditional IRAs originating from rollovers had the highest average balance.

Contributions and Rollovers

  • Just over 12 percent of all accounts in the database received a contribution in 2017, with an average contribution of $3,913. Roth IRAs were more likely to receive a contribution than Traditional IRAs (26.6 percent vs. 5.7 percent).
  • Assets from rollovers to IRAs in 2017, regardless of the source, amounted to nearly 12 times more than the total contributions in the database. The average and median rollovers to a Traditional IRA in 2017 were $94,879 and $14,454, respectively; the average contribution to a Traditional IRA in 2017 was $4,163.

Withdrawals

  • Just over 21 percent of individuals owning a Traditional or Roth IRA took a withdrawal in 2017. However, while only 3.3 percent of individuals with a Roth IRA took a withdrawal, 25.6 percent of individuals with a Traditional IRA took a withdrawal.
  • The overall IRA withdrawal percentage was largely driven by activity among individuals ages 70-½ or older owning a Traditional IRA — the group required to make withdrawals under the required minimum distribution (RMD) rules. In contrast, among owners under age 60, 9.0 percent or less of any age group had a withdrawal. Withdrawals are more likely to occur from Traditional IRAs than from Roth IRAs, regardless of age.
  • One-quarter of IRA owners ages 71 or older were found to have withdrawn an amount from their Traditional IRA in excess of their RMD.

Asset Allocation

  • Just under one-half (46.4 percent) of all IRA assets were allocated to equities, although this varied with owner age, account balance, and IRA type. There were minimal differences in asset allocation trends by gender.
  • Those owning Traditional IRAs had, on average, lower allocations to equities. Furthermore, equity allocations peaked for both Traditional and Roth IRA owners ages 45–54. IRAs with the largest and smallest balances had the lowest combined exposure to equities (including the equity share of balanced funds added to the pure equity funds).
  • Accounts of less than $5,000 were highly concentrated in money, which is a result of automatic rollovers from 401(k) plans with balances of $1,000 up to $5,000 that are defaulted into money.
  • Overall, in 2017, 24.4 percent of IRAs had less than 10 percent in equities and 28.6 percent had more than 90 percent in equities, so-called “extreme allocations” in a particular asset category. Furthermore, 16.4 percent of IRAs had more than 90 percent of their assets in bonds and money.

Longitudinal

  • The average IRA balance increased 22.4 percent from 2013 ($93,441) to 2017 ($114,383). The average contribution to a Traditional or Roth IRA slightly increased from $3,880 in 2013 to $3,913 in 2017.
  • The asset allocation of IRAs changed very little between 2013 and 2017, with the asset categories having allocations within 2 percentage points of each other between those years.