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The Preferred Savings Vehicles of Investors

 A Spectrem study examines the percentage of investors who have defined contribution and IRA accounts. 

| BY Kent McDill

For decades, Americans have had the opportunity to place a portion of their paycheck into a defined contribution account or make contributions into an Individual Retirement Account with an eye toward having funds available for the day when they are no longer working.

DC plans and IRAs have gone through numerous adjustments, and currently suffer a bit from low savings rates, a slow recovery from the 2008 financial crisis, and the fluctuating stock market performance. However, Americans still make the pre-tax contributions, because any retirement account is better than none.

Spectrem’s fourth-quarter wealth segmentation series study Asset Allocations, Portfolios and Primary Providers lists how the assets of affluent investors are distributed, and include specific information on IRA ownership.

The Spectrem studies look at three different wealth segments, which often display different levels of asset distribution and percentages of investable assets. The segments are Mass Affluent investors (with a net worth between $100,000 and $1 million), Millionaire investors (with a net worth between $1 million and $5 million) and Ultra High Net Worth investors (with a net worth between $5 million and $25 million).

For the purposes of comparison, Ultra High Net Worth investors report 67 percent of their assets as investable assets, and 24 percent of those assets are in rollover, contributory or Roth IRAs, with an additional 6 percent in defined contribution plans. Millionaires have 55 percent of their assets as investable, with 24 percent in IRAs and 11 percent in DC plans, and Mass Affluent have 38 percent of their assets as investable, but they have a much higher percentage of IRA ownership at 33 percent, with 13 percent in employer-sponsored DC plans.

There are factors that affect those percentages. Mass Affluent investors are on average younger and more likely to still be working, so they are more likely to have defined contribution accounts through their place of employment. 

Age plays a huge role in the ownership of DC plans and IRAs. Among Mass Affluent investors in the Spectrem study, 100 percent of those under the age of 36 own employer-sponsored defined contribution plans, and 83 percent own Roth IRAs, which are after-tax plans that have no tax penalties for withdrawals. Roth IRAs do have an income maximum, so they again are more likely to be used by the less wealthy investors in the study.  

Conversely, only 41 percent of Millionaires over the age of 65 still have employer-sponsored DC plans, and only 48 percent are invested in Roths. The oldest investors are more invested in rollover IRAs (63 percent) than the youngest investors (50 percent).

With the aging of America, the role of contributory, rollover and Roth IRAs is expected to change. As Baby Boomers stop working, they are likely to move assets from their employer-sponsored accounts. High income Americans are urged by financial advisors to consider Roths due to the ease of access to the funds upon retirement.

There is a tax burden when converting funds initially to Roth IRAs, but there is no limitation to the amount that can be converted, although there is the aforementioned maximum income level for participation. There are limitations to the amount that can be contributed to an existing Roth account.

Meanwhile, as Baby Boomers move into the 70-plus age group, they are required by law to take distributions from their defined contribution, rollover or contributory IRAs, at which point those distributions are taxed.

  



About the Author


Kent McDill

kmcdill@spectrem.com

Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.

In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.

McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.

McDill is the father of four children, and an active fan of soccer, Jimmy  Buffett and all things Disney.

 


 

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