New research from the Investment Company Institute (ICI) details the characteristics and behaviors of individual retirement account (IRA) investors.
Among the major findings, ICI found that Roth IRA investors tend to be younger than traditional IRA investors. Specifically, 31 percent of Roth IRA investors were under the age of 40, compared with 16 percent of traditional IRA investors. Further, just 26 percent of Roth IRA investors were over the age of 60, compared to 41 percent of traditional IRA investors.
“Though there are significant differences between traditional and Roth IRA investors, both provide savers with flexibility and diversification in their retirement savings options,” Sarah Holden, ICI senior director of retirement and investor research, said. “Traditional IRAs are a popular option for savers who are looking to roll over a workplace retirement plan account, while Roth IRAs are often started with contributions. Both IRAs have options that appeal to workers in various stages of their lifetime savings cycles and help millions of Americans prepare for retirement.”
ICI also found that 80 percent of traditional IRAs opened in 2016 were opened by rollovers from other tax-deferred retirement accounts. On the other hand, Roth IRAs are more often started with contributions. Specifically, 70 percent of new Roth IRAs opened in 2016 were opened only through contributions.
Also, 70 percent of investors in traditional IRA investors who contributed in tax year 2015 also contributed in tax year 2016, while 80 percent of Roth investors did the same.
In addition, ICI discovered that 65 percent of Roth IRA assets were invested in equities and equity funds compared with 53 percent of traditional IRA assets. Further, allocations to balanced and target funds were similar for both Roth and traditional IRAs (19 percent), while allocations to bond funds were lower in Roths (7 percent) than traditional IRAs (17 percent). Also, Roth IRAs had a lower allocation to money market funds (7 percent) than traditional IRAs (9 percent).
Regarding withdrawal activity, 4 percent of Roth IRA investors aged 25 or older made withdrawals, compared with 24 percent of traditional IRA investors.
The data came from two recent ICI reports, the “The IRA Investor Profile: Traditional IRA Investors’ Activity, 2007–2016” and “The IRA Investor Profile: Roth IRA Investors’ Activity, 2007–2016.”