American workers of all ages share similar dreams of how they will spend their retirement years. Each generation’s top three wishes for retirement are traveling, spending more time with family and friends, and pursuing hobbies.1 But the generations have not had the same experiences in saving for retirement. Where do you fit in?
- Millenials (born 1979–2000) are the first generation to start saving for retirement at a young age – and to start saving at high rates. Their retirement savings projections are good, if they continue saving throughout their careers.1
- Generation X (born 1965–1978) entered the workforce while 401(k) plans were just becoming popular. Although the majority is saving for retirement, many Gen Xers are not saving enough to make up for starting later.1
- Baby Boomers (born 1946–1964) were in the middle of their careers by the time employers began adopting 401(k)-type plans. Because of a late start in saving for retirement, 69% expect to or already are working past age 65 or do not plan to retire.1
Using IRAs to supplement retirement savings
Each generation also shares the same top fear when it comes to retirement: outliving their savings and investments.1 Many of those who are worried about saving enough for retirement use IRAs to supplement or enhance their workplace plan investments. IRAs actually hold more assets ($9.3 trillion) than all of the defined contribution employer plans ($8.1 trillion).2 One-third of all U.S. retirement savings is held in IRAs. 2
IRAs are popular retirement savings vehicles for several reasons. Like 401(k) plans, IRAs provide tax incentives for saving, including tax-deductible traditional IRA contributions and tax-free Roth IRA distributions. But, unlike a workplace plan, IRAs allow the investor full control over contributions and withdrawals (within IRS rules), and the choice of IRA custodian to hold the IRA investments. Custodians that offer self-directed IRAs open the door to a wide array of investment alternatives, such as private stocks, angel investing, limited liability companies, and real estate-related products, that are typically not available inside a workplace retirement plan.
Traditional IRAs receive the most rollovers
The most common type of IRA owned today is the traditional IRA. Although traditional IRAs have been available for longer than other types of IRAs, they are also used to receive rollovers from workplace retirement plans when an employee changes jobs or retires. About 19 million U.S. households, or 58% of those owning traditional IRAs, have IRAs that contain rollover dollars from their former employers’ retirement plans.2 Among those with rollovers in their traditional IRAs, 84% rolled over the entire balance from their retirement plan account.2
Retirement savers cite multiple reasons for rolling over their employer plan assets into an IRA: 2
- 64% – Do not want to leave assets with their former employer
- 60% – Preserve the tax treatment of the savings
- 54% – Consolidate their retirement assets
- 54% – Get more investment options
- 40% – Change financial services providers
Roth IRAs receive more contributions
Roth IRAs are the second most common type of IRA owned. Retirement plan assets may also be rolled over to a Roth IRA, but a rollover of pre-tax plan assets is taxable to the investor in the year of the rollover, and consequently is not as popular as tax-free rollovers to traditional IRAs. Roth IRAs, however, are more likely to receive annual contributions than traditional IRAs.2 Reasons why Roth IRA owners make more contributions may include
- 41% of traditional IRA owning households have at least one retired member of the household who may no longer be eligible to contribute to a traditional IRA2
- High income savers cannot take advantage of the tax deduction for traditional IRA contributions if they have a retirement plan at work2
Learn more about retirement savings and opening an IRA:
Find more information about Mainstar Trust self-directed IRAs at www.mainstartrust.com, including how to open an IRA and roll over assets to a Mainstar Trust IRA.
Contact the Mainstar Trust team at 1-800-521-9897 or customerservice@mainstartrust.com