The Investment Company Institute, the mutual fund lobby group conducted
a survey last year concerning the state of the Individual
Retirement
Account or IRA. Created in 1974 as a way to supplement company sponsored pension plans, these plans have grown in size and popularity. Since they were first offered, the program has become the main vehicle for
retirement savings for over 40% of the households in this country.
According to the ICI, over $3 trillion is currently invested in IRAs,
whether they be traditional or Roth. Both plans make use of mutual funds and both are tax deferred. The
Roth is made with deposits that have already been taxed and the growth is taxed at
retirement; traditional IRAs are tax deductible with the entire amount locked away until age 59 1/2. Both plans assume that the taxable income at
retirement will be less.
The surveyors, who looked at 3000 households, found that over two-thirds of those holding IRAs invest in mutual funds with the remaining investments divided somewhat evenly between individual stocks, annuities, and bank
deposits.
This plan became essential for employees as companies jettisoned their
traditional defined benefit programs in favor of defined contribution
plans, the later being self-directed by the employee.
Almost half of those surveyed created traditional IRA plans as a result of a rollover. A rollover can result in a job change, termination or layoff. 70% of the respondents told the ICI that a rollover was the main reason for the plan change. A third responded that they opened the plan because of
retirement.
The ICI also discovered in its survey that the median savings in these
retirement accounts amounted to $24,000. These plans are preferred by
older workers.
A well developed plan, more on investing for
retirement.
