The IRA Turns 50
Once upon a time, there was no such thing as a tax break for individual retirement savings. That was before 1974, before passage of the Employee Retirement Income Security Act (ERISA). The primary purpose of ERISA was to make certain that the retirement promises made by private companies to their employees would be kept, and that tax-preferred retirement savings programs would be made available in a nondiscriminatory fashion. But what about those who did not participate in an employer plan? For them, the Individual Retirement Account was created. At that time, up to $1,500 could be contributed by eligible taxpayers to an IRA, and a corresponding deduction taken. The eligibility rules were later loosened in 1981, but the tax deduction was later scaled back for higher-income taxpayers. In 1998, the Roth IRA was introduced, providing for an after-tax savings option with potentially tax-free distributions.
According to the Investment Company Institute’s 2024 Fact Book:
- 56 million U.S. households owned an IRA at year-end 2023.
- Total IRA assets have reached $13.6 trillion, which is about 35% of all U.S. retirement assets.
- The next largest category, at $7.4 trillion, are 401(k) plans, followed by private-sector pension plans with $3.2 trillion.
- Mutual funds comprise 43% of IRA assets.
- The spectacular growth of IRAs has been fueled in part by rollovers from company retirement plans.
- Roth IRAs have $1.4 trillion in assets, while traditional IRAs have $11.4 trillion.
- New traditional IRAs mostly come from rollovers (74%), and new Roth IRAs mostly come from annual contributions (77%).
- IRAs are being used for their intended purpose, making retirement more financially secure. 60% of those making traditional IRA withdrawals are 70 years old or older, while just 6% are under age 59.
- Roth IRA owners generally avoid withdrawals, as only 6% of owners take them.
- Median ages are 51 for Roth IRA owners, 62 for Traditional IRAs. That may reflect the importance of IRA rollovers at retirement to preserve tax benefits.
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