IRA investors hold fewer equities post-recession

By BenefitsPro


By Paula Aven Gladych

IRA investments in equity holdings have dropped significantly since the recession, according to data from the Investment Company Institute.

Consistent traditional IRA investors between the ages of 25 and 59 had about three-quarters of their traditional IRA assets invested in equity holdings — which includes equities, equity funds and the equity portion of balanced funds — at year-end 2007. That figure fell to about two-thirds at year-end 2011.

ICI said it also found the majority of IRA investors didn’t make many contributions to their traditional IRAs during the recession and in the immediate couple of years after its official end. In tax-year 2011, for example, only 8.3 percent of traditional IRA investors contributed to their accounts, and just half of traditional IRA investors who did so contributed at the legal limit.

Offering another indication of the disruptive nature of the recession, the number of individuals rolling over a retirement account into an IRA increased in 2011. About seven in 10 new traditional IRAs received rollovers, which typically happen after a job change occurs or a person retires. In most years, only about one in 10 traditional IRA investors make rollovers.

Withdrawal activity is rare among younger traditional IRA investors and, overall, only about one in five traditional IRA investors took withdrawals in 2011. Of these, nearly three-quarters were taken by traditional IRA investors aged 60 or older who can take penalty-free distributions, and more than half were taken by investors over the age of 70 who are required to take annual distributions.

Younger traditional IRA investors had a higher proportion of their accounts invested in equity holdings compared with older investors, except those younger than 40. In that case, their holdings were more concentrated in money-market accounts, the report found.

The ICI chalked this up to the large number of small accounts in this age group. Small account balances could represent automatic rollovers from employer-sponsored plans and be invested in default money market and cash investment.

Originally published on BenefitsPro.com