IRA Assets Grow to Almost $14 Trillion

According to a recent piece by Cerulli Associates, IRA assets have soared to $13.9 trillion in 2021, dwarfing the $6.3 trillion held in 401(k) accounts. IRA market share as a percentage of savings within the retirement market has grown from 31% to 38% over the past decade – with expectations to eclipse 41% by 2027. In other words, more and more people are taking advantage of IRAs as an investment vehicle, many of whom are rolling over funds from defined contribution plans (or DC plans), like 401(k)s and 403(b)s. 

We’ve spelled out what you need to know about these changes in the IRA landscape below.

What’s driving the growth of Individual Retirement Accounts?

IRA market share has grown substantially for a number of reasons. The key contributors are:

• Rollovers from 401(k)s into IRAs have continued to grow. Transferring savings from 401(k) plans into IRAs is a way of decoupling retirement savings from an employer. This can be appealing for a variety of reasons. Some people prefer to consolidate 401(k)s into a single IRA in order to centralize their retirement savings and make it easier to manage from one single account. Others like the increased flexibility that IRAs offer, including more investment options, some of which may have lower fees than those present in their 401(k) plan.
• Americans are changing jobs with greater frequency. If we’ve learned anything through the pandemic era and The Great Resignation, it’s that people are willing to move around from employer to employer more than ever. Gone are the days of a typical worker spending decades at a single company and retiring on a prescribed date. More movement between jobs means more opportunity for 401(k) rollovers, many of which are commonly transferred into IRAs.
• There’s a greater awareness around retirement planning. Studies have shown that those who are more deliberate around planning for their financial future are more likely to meet, or at least approach, their goals. Keeping on top of your finances by consolidating left-behind 401(k)s in one or more IRAs can help you more carefully monitor your financial life.
• Left-behind 401(k)s have a lot to lose. According to one of our recent whitepapers, Americans can lose up to a staggering $700,000 in dormant 401(k)s that are poorly-allocated, unusually expensive, or both. A growing awareness around what this means for the common investor has likely contributed to more activity in the IRA rollover space.
• Capital market performance has been strong. The S&P 500 and other major indices performed exceptionally well over the 2010s. This meant the amount of money in 401(k) accounts grew as well since these accounts are invested in equities and bonds. Those bigger balances were then rolled over into IRAs. 

Read on to learn why a prospective saver might consider an IRA relative to their old 401(k). 

Why might someone choose to roll over their 401(k) retirement savings?

People choose to roll over their IRA for any number of reasons, but we see the following listed as some of the top factors. 

Lower fees

It’s definitely no longer the case that every 401(k) plan has high fees, but many plans still do. IRAs can be opened and maintained for very little or for free, which is appealing to cost-conscious retirement savers.

More investment options

Most 401(k) plans come with a fixed menu of investment options, usually a variety of mutual funds. While these choices are generally more than adequate for most 401(k) adherents, not everyone wants to invest that way. IRAs offer a much wider choice of investment vehicles, including stocks, bonds, ETFs, and even crypto (in certain cases).

More independence

When people leave an employer, some prefer a clean break. Moving your 401(k) to an IRA means moving your retirement savings from corporate jurisdiction to your own control. This can mean a lot for people looking to fully separate from an old employer and gain control over contribution plans.

Consolidation

If you’ve ever left a job before, you might have multiple 401(k)s you want to roll over. An IRA can act as a single repository to collect old, lost, or forgotten 401(k)s. This is a smart way to consolidate your finances and ultimately make your life easier when it comes to keeping track of your money – especially as you progress through your job histories.

Trends to watch 

The growth of IRAs overall could benefit the average investor by expanding ways to achieve important retirement saving goals. Some of this could be spurred from new regulation by the federal government like the Secure 2.0 Act. There are a few trends to watch as IRA assets continue to grow. 

More perks due to provider competition

IRAs have always been competitive products. As the opportunity grows, we’re likely to see more providers offer additional perks to investors, like deposit bonuses and free trades as a way to stand out in a tough market – much like the credit card landscape

More investment options within an IRA

IRA providers have also been working hard to offer more – and different – investment options. From art to crypto to startups, new tech-enabled IRA providers are helping investors deploy their retirement savings into these “alternative assets”. 

The Bottom Line

Rollovers from 401(k) plans are the driving factor behind the growth of assets held in IRAs. IRAs have some benefits over 401(k)s as an investment tool, and their growth in popularity will hopefully continue to yield benefits to the average investor. No matter what you choose to do with your old retirement plan, the decision is up to you, and the money is yours. At the same time, it’s good to know that the IRA market is expanding – and for good reason. If you’re considering rolling over your 401(k) and you need help, we can help.