Americans prefer Roth IRA
The amount of money Americans are choosing to invest in a Roth IRA is on the rise. In 2013, the average American invested $119,804 in IRA accounts. This was a substantial increase of 30.4% compared to 2010. The median accounts are on point with the same pattern. The average median account was $32,179 in 2013, this is a 27.2% increase over the $25,296 in 2010.
The increased contributions into IRA accounts have been the result of investing in the growing stock and bond markets as well as by rollovers from employer sponsored plans, including 401 k.
However, despite the increase in investments into the accounts, experts remain worried. Relatively few people are actually contributing to their IRAs. The average is between 12.1% in 2010 and 13.8% in 2013. This means that only 6% of IRA owners contribute to their accounts annually.
The interesting point to note is that Americans prefer Roth IRA accounts to traditional IRAs. One reason for this is that Roth IRAs are funded with after-tax contributions that then grow tax-free and are not subject to required minimum distributions for investors over 70 ½ years of age, as are traditional IRAs. Additionally, investments in Roth IRAs are tax-free.
The average balance of the median Roth IRA was up 51.6% in 2013 over 2010. This is in comparison to 28.3% for all traditional IRAs. Roth IRA accounts had an average balance of $37,010, and a median balance of $15,018 in 2013.
Smart Millennials are using Roth IRAs to build their initial assets. They invested their savings into Roth IRAs, while using the traditional IRAs for the rollovers of their employer sponsored plans.
Overall, the dollar amount in IRAs is growing despite having only 27% of the $26.2 trillion in retirement plans in the United States. Definitely, those who started contributions to their IRA plans will wind up with a more secured retirement, in comparison to those who preferred to wait.