Average IRA contributions for 2011 were $3,930, up from $3,420 four years earlier. Every age group posted increases over 12%, with the largest increases coming from the 40-49 and the 70+ age groups.
Among those IRA contributions, investors have consistently preferred the Roth to the traditional version for the last several years. According to Fidelity, "on average, contributions to Roth IRAs have surpassed those made to traditional IRAs by 62.7% since tax year 2007." Fidelity also reported that Roth IRA conversions in the first half of 2012 were more than double (up 109%) from the number conducted within the same time period in 2009: before income limits on conversions were removed in 2010.
Judging by contributions, Roth IRAs appeal most to the youngest and oldest investors. Among 20-somethings, 84% of all IRA contributions recently have been on the Roth side while the 70+ group put 85% of their IRA dollars into Roths. Youngsters have more years of potential tax-free growth and seniors may perceive Roth IRAs as estate planning vehicles because those accounts have no required distributions.
Conversely, traditional IRA usage peaks with investors in their 50s. That's often when earned income peaks as well, and many high-income taxpayers are shut out of Roth IRA contributions.For the past three tax years, 41.6% of the contributions from that age group were made to traditional IRAs, on average.
"We see a higher ratio of individual stocks and bonds in Roth IRAs," Fidelity vice president Ken Hevert said in an interview, "while traditional IRAs are more likely to be invested in mutual funds. Across the board, we see a greater interest in learning about income investing."
Many investors had been familiar with growth investing, Hevert explained, but now they want to find out more about how CDs, bonds, and dividend-paying stocks can fit into their retirement planning. "We're clearly seeing a shift," he said, "as individuals put more stress on self-reliance in building the wealth they'll need for retirement. People want to know about the different asset classes, and how the different pieces (IRAs, company plans, even HSAs) all fit together."
Donald Jay Korn writes for Financial Planning.