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Having Both a 401(k) Plan and an IRA: How Much Does This Change the Retirement Asset Picture?

Oftentimes, reporting on retirement assets focuses on the average balances of either 401(k) plans or individual retirement accounts (IRAs). While this provides invaluable information on the behavior within those accounts, it does not show a complete picture of the amount of retirement assets workers or retirees have accumulated. Many individuals hold both 401(k) plans and IRAs — especially as they grow older and move from job to job. Combining the EBRI/ICI 401(k) Database of 27 million plan participants with the EBRI IRA Database of 19 million accountholders provides a unique perspective on the relative amount of assets held by those having both account types. This allows for a more accurate picture of total retirement assets across individuals. Key findings include:

  • 401(k) plans represent the greatest portion of the combined account balances of individuals, and increase as a portion of the whole over time. This is presumably driven by the higher likelihood of contributions, higher contribution limits to 401(k) plans than to IRAs, and company matching contributions.
  • Having both a 401(k) plan and an IRA results in a higher balance over time: The ratio of the average combined 401(k) plan/IRA balance to the average 401(k) plan balance (of all of those having a 401(k) plan each year) was 2.48 at the end of the study. The average combined balance compared with the average IRA balance was 2.53 times higher in the final year of the study.
  • However, many individuals with both account types did not maintain both in all years studied: Accounts were closed when individuals changed jobs or dollars were rolled over to other accounts as individuals retired. This affected the amount accumulated among those with both account types relative to those with only one account type. In fact, the ratio of the average combined balance of those having 401(k) plan/IRA balances in every year to the average combined balance of those having both at only some point was 2.03 at the end of the study.
  • Further, maintaining just a 401(k) plan generated as much in balances as the amount generated by individuals who owned both account types only at some point in the period studied. This is likely due to breaks in service among the latter group providing opportunities for leakage. While balances grow steadily for those with only 401(k) plan balances or both account types throughout the period below, those switching between account types (orange line) begin to see reduced balances. This is likely due to cessations in contributions and/or withdrawals that indicate leakage from the system.
  • While 401(k) plan assets make up the bulk of the assets of those who maintained both account types throughout the study, owners/participants of those having both only at some point were more likely to have had an IRA for more years than a 401(k) plan: The average number of years for an IRA was 5.5, compared with 4.0 years of owning a 401(k) plan.

Any attempt to estimate the assets held by workers needs to take into account the workers’ ages, tenures, and number of years of having both account types in the same year. This study helps put numbers to what would be expected to be accumulated given these different traits of workers. In addition, it shows the potential of what can be accumulated in total if workers are able to maintain both account types throughout their working lives (or large portions of them). It also shows that this potential is not always met as workers change jobs, stop contributing, or take money out of (close) their accounts, resulting in retirement asset leakage.

Source: Craig Copeland, “Having Both a 401(k) Plan and an IRA: How Much Does This Change the Retirement Asset Picture?,” EBRI Issue Brief, no. 511 (Employee Benefit Research Institute, August 20, 2020).