ICI Research Focuses on History of IRAs

A pair of February ICI reports examine the Individual Retirement Account market, including a retrospective look at how IRAs have changed since they were implemented 30 years ago.

While noting that IRA assets now represent one in every four retirement dollars in the United States, “The Individual Retirement Account at Age 30: A Retrospective” also observed the conditions that best promote the use of IRAs.

“Incentives [to build retirement assets] work best when rules, structure, and provisions are simple, flexible, and predictable.”‑ICI Senior Economist Sarah Holden, co-author of the report

Among other key findings in ICI’s research about IRAs:

  • Individuals had $3.0 trillion in IRAs, which accounts for 26 percent of the U.S. retirement market.
  • In 2004, 40.4 percent of U.S. households owned IRAs.
  • Typical households owning IRAs have more than a fifth of all its financial assets in an IRA account.
  • Mutual funds are the primary investment vehicle for IRAs, holding two-thirds of all IRA assets.
Types of IRAs and Incidence of IRA Ownership, 2004
  Year Created Number of U.S. Households with Type of IRA, 2004 Percent of U.S. Households with Type of IRA, 2004
Traditional IRA 1974(Employee Retirement Income Security Act) 36.7 million      32.8%               
SEP IRA 1978(Revenue Act)    
SAR-SEP IRA 1986(Tax Reform Act) 9.6 million      8.6%               
SIMPLE IRA 1996(Small Business Job Protection Act)    
Roth IRA 1997(Taxpayer Relief Act) 14.3 million      12.8%               

Note: Multiple responses included
Sources: Investment Company Institute, 2004 Annual Tracking Survey and U.S. Census Bureau

Contributions to IRAs Increase When Rules Governing Them Are Simple

Congress first created the IRA in 1974, but has added new types of IRAs and changed the rules governing who can contribute and how much can be contributed many times over the last 30 years. “The Individual Retirement Account at Age 30: A Retrospective,” discusses the impact of “universal” IRAs, which were started by the Economic Recovery Tax Act of 1981 (ERTA) and are a good example of how the rules for contributing can be simpler and spur saving. Under ERTA, Congress raised the limit on contributions and allowed any taxpayer under 70½ to make tax-deductible contributions. Once universal IRAs were eliminated in 1987, contributions dropped from $37.8 billion in 1986 to $14.1 billion in 1987.

Households that Own IRAs Tend to Have a Higher Income

IRA Ownership in 2004” in Fundamentals found that households that own IRAs tend to have a higher income than those households that do not own IRAs. As well, the IRA-owning households also are more likely to have college or postgraduate degrees. According to ICI research, households owning traditional IRAs had a median of $24,000 in the IRA, usually in two accounts.

The median characteristics of households owning IRAs:

  • Average age of sole or co-decisionmaker is 49 years;
  • Household income is $62,400;
  • 66 percent are married; and
  • 76 percent own mutual funds.


March 2005