First came the emergence of the 401(k) millionaires... So it's only natural that balances in IRA accounts are now making a steep jump.
More Americans are finally starting to get it when it comes to saving for their retirement, and financial analysts say you don't want to be left behind.
A new report from the Employee Benefit Research Institute (EBRI) shows that the average account balances for IRAs rose 30.4 percent between 2010 and 2013, the latest year available for the purposes of the study.
That means the average account increased from $95,363 to $119,804, and the median account went from $25,296 in 2010 to $32,179 in 2013. That's a 27.2 percent increase, says Craig Copeland, a senior researcher at the institute and author of the study.
The biggest reason for these new hefty savings was the increase in the federal contribution limits for 401(k) and IRA plans that in 2013 for IRAs went from $5,000 for those under 50 and $6,000 for those over 50 to an additional $500 a year for each age group.
"That's why there was such a big jump," Copeland says. "People are taking advantage of it as much as they can as they get a more realistic view of what they need."
Baby Boomers are contributing more to traditional IRAS, whereas the younger generations are focusing on Roth IRAs, where contributions are made after tax deductions and allow the proceeds to grow tax free.
IRAs hold nearly 25 percent of retirement plan assets with the vast majority of that amount originating in pension plans or 401(k)s and eventually moved into an IRA, Copeland says.
Copeland says he expects the average balances found in the study to continue to increase as more people realize the importance of planning for their retirement.
"With growing 401(k) plan balances and IRAs being a popular destination for 401(k) assets when people change jobs or retire, the amount of income derived from IRAs will grow significantly as a supplement to Social Security for the Baby Boom and Gen X generations," Copeland says.
The increase in the median Roth IRA was nearly 52 percent from 2010 to 2013, compared to 28 percent for traditional IRAs (because younger people turn to Roth IRAs). Also, the Roth IRAs don't require a minimum distribution once people turn 70 ½. The average contribution went from $3,335 in 2010 to $4,145 in 2013.
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