“Extreme” IRA allocations more likely among younger workers with smaller balances, EBRI finds

Young workers with small balances and owners of Roth individual retirement accounts (IRAs) are more likely than other IRA owners to make “extreme” allocations to stocks or money, according to a new report from the Employee Benefit Research Institute (EBRI). The findings are from the latest update of the EBRI IRA Database, “IRA Asset Allocation, 2011.”

The EBRI report defines “extreme” allocations as those that involve investments less of than 10% or more than 90% in a particular asset class. The EBRI report found that such allocations tended to be more prevalent among younger IRA owners and among those with lower account balances.

More than a third (37.5%) of IRA owners younger than age 25 had more than 90% allocated to equities, the highest percentage among all the age groups. Roth and traditional IRAs established by contributions were more likely to have greater than 90% invested in equities and least likely to have more than 90% invested in money/cash equivalent funds. In contrast, traditional IRAs established by rollovers, and SEP/SIMPLE IRAs were much more likely to have 10% or less invested in equities and 90% or more invested in money/cash equivalent funds.

IRA owners with higher account balances generally were less likely to have extreme asset allocations, the EBRI found. For example, while 37.2% of those with account balances of $10,000−$24,999 had 90% or more of their assets invested in equities, only about 1 in 10 of those with account balances of $250,000 or more did.

Source: EBRI press release PR 1046, October 10, 2013.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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