401(k) Rollovers To IRAs Rising As Boomers Retire | American Funds

  • Forms

By the Numbers

MARCH 13, 2017

Roll With It: 401(k) Rollovers Help Fuel IRA Growth

As an increasing number of baby boomers head toward retirement, more are rolling their 401(k) plans into individual retirement accounts (IRAs). A look at the trend — and the reasons behind it.

$423.9 billion — Amount U.S. households rolled over to traditional IRAs in 2014, according to the Investment Company Institute — a 65% jump from 2009’s $257.3 billion.

You may have heard some of your colleagues advocating a 401(k) rollover to IRAs, and they’re far from alone.

During a five-year period from 2009 to 2014, the amount of money U.S. households rolled over from 401(k) accounts into traditional IRAs jumped 65% — from $257.3 billion to $423.9 billion — according to a report released in January by the Investment Company Institute, a global association commited to encouraging high ethical standards in the industry.

An IRA rollover is the transfer of funds from a workplace retirement plan, such as a 401(k), into an individual retirement account. When leaving a job, employees who want to stay invested may want to keep their 401(k) assets where they are. Others might want to roll it into a new employer's plan, if available. Cashing out is another option, but the money would be subject to taxes and possible penalties, and you would miss out on potential growth. Many choose to roll the assets from their company's retirement plan into an individual retirement account.

The growth of IRA rollovers in recent years has been driven in large part by the increasing number of baby boomers who are reaching retirement age. “It’s a trend we expect to continue for several reasons,” says Hanh Dao, a senior product manager at Capital Group. “IRAs today have more options that address investors needs while living in retirement.”

What’s more, IRAs have tax advantages comparable to those of 401(k) plans. In fact, 63% of participants in ICI’s study indicated that the desire to preserve the tax treatment of their savings was a key factor in choosing to roll assets into IRAs, while 58% cited the greater variety of investment choices.

In addition, an IRA is an easy way for investors with multiple retirement plans to consolidate their assets into a single account  a motivation for 57% of households with traditional IRA rollovers. “Consolidating assets can make it easier for individuals to manage their portfolios and and can help them to work with an advisor,” adds Dao.

Sarah Holden, ICI’s senior director of retirement and investor research, expects that rollovers will continue to fuel the growth in IRAs. “This trend demonstrates the IRA is working as designed,” she says, “enabling investors to accumulate retirement savings while consolidating assets, and accessing a range of financial service providers and investment options.”

Source: “The Role of IRAs in U.S. Households’ Saving for Retirement, 2016,” Investment Company Institute, January 2017

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.