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Annual IRA Contributions Increase Nearly 15 Percent Over Last Five Years According to New Fidelity Investments Analysis
Roth IRA Conversion Levels Remain Strong in 2012, As Potential Tax Law Changes LoomBOSTON – Fidelity Investments® today unveiled a five year analysis of contributions made by investors to Fidelity Individual Retirement Accounts (IRAs). The findings show the average contribution reached $3,930 in tax year 20111, up nearly 15 percent from $3,420 in tax year 20072. Double digit percent contribution increases were seen across all age groups – from investors in their 20s to 70 and older3. Additionally, Roth IRA conversion activity in 20124 continues to be double the level seen in 2009 – before income limits were removed.
“The historic market conditions over the last several years have jump-started many investors to take control of their personal economy and increasingly focus on saving for their retirement,” said Ken Hevert, vice president, Fidelity Investments. “These strong contribution rate increases also show more investors are leveraging the power of tax-advantaged vehicles like IRAs to achieve their retirement goals.”
The analysis from Fidelity, the No. 1 provider of IRAs to investors, with nearly $700 billion5 in assets under administration in IRAs alone, highlights positive contribution trends across all age groups:
The analysis also examined usage trends of Roth and Traditional IRAs, highlighting the various benefits of each account. Findings from the analysis include:
• Roth IRA Maintains Leadership: Offering tax-free growth potential and withdrawals, investors have consistently preferred Roth IRAs for the last several years. On average, contributions to Roth IRAs have surpassed those made to Traditional IRAs by 62.7 percent since tax year 2007.
• Pre-Retirees Investors Saving the Most: For the past five years, investors in their 60s have had the highest Roth and Traditional IRA contribution rates. For tax year 2011, these investors contributed on average $4,930 to Roth IRAs and $4,790 to Traditional IRAs.
• Traditional IRA Usage Peaks with Investors in Their 50s: As many of these investors can’t contribute to a Roth IRA due to income restrictions, investors in their 50s have the highest propensity towards using Traditional IRAs. For the past three tax years, on average 41.6 percent of their contributions are made to Traditional IRAs.
• Roth IRA Usage Spikes with Youngest and Oldest Investors: As a testament to the popularity of the product’s tax benefits, 84 percent6 of all contributions made by investors in their 20s were made to Roth IRAs. Additionally, with no minimum required distributions during the lifetime of the original owner and as a possible estate planning strategy, 85 percent of all contributions made by investors aged 70 and older7 were to Roth IRAs.
Roth IRA Conversion Levels Remain High
With income limits removed for Roth IRA conversions in 2010, investors are still continuing to examine the Roth IRA as a potential strategy within their overall retirement savings plan.
For the first half of 2012, Fidelity conducted more than 45,000 Roth IRA conversions with investors. This is a slight increase over the number of conversions conducted during the same time last year, and more than double (109 percent) the number conducted within the same timeframe in 2009 – before income limits were removed.
“With potential tax changes looming, including rate increases for income taxes, long-term capital gains and qualified dividend income, investors are looking at a wide range of strategies to prepare for a number of possible tax scenarios,” said Hevert. “A Roth IRA conversion can be a smart strategy if you expect your tax rate to be higher in future years.”
Fidelity Offers IRA Guidance to Help Investors
Fidelity offers several educational tools for investors in its online IRA Center that explain the benefits of the different types of IRAs and help investors determine which is right for them. The IRA Center also offers calculators that can help determine how much they may be able to contribute, and how much might be tax-deductible. Fidelity also provides a Roth Conversion Evaluator, which can be used online by all investors, or with assistance from a trained Fidelity representative, to help determine whether or not a full or partial Roth IRA conversion makes sense for them in the context of their overall retirement plan.
In addition to these educational resources, Fidelity offers a wide range of tools that helps keep investors committed to reaching their contribution goals. This includes an automatic investments feature, which can be set-up to regularly transfer money from an investor’s bank account to their Fidelity IRA. Fidelity customers also have the ability to deposit checks to their IRAs via their mobile devices.
About Fidelity Investments
Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of $3.7 trillion, including managed assets of $1.6 trillion, as of July 31, 2012. Founded in 1946, the firm is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and many other financial products and services to more than 20 million individuals and institutions, as well as through 5,000 financial intermediary firms. For more information about Fidelity Investments, visit www.fidelity.com.
1) January 1, 2011 through April 17, 2012