Saving for Retirement

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IRA Insights: Vanguard research shines light on investor behavior

December 16, 2014

Nearly four out of every ten U.S. households own an Individual Retirement Account (IRA), representing a total of more than $5.7 trillion in assets.

Are most investors maximizing their IRA contributions? What are the trends around IRA use?

On a regular basis, Vanguard researchers analyze how investors are using IRAs and whether they're missing opportunities that could improve their chances for building a bigger retirement nest egg.

The benefits of a "backdoor" Roth

November 28, 2014

Higher-income investors who want access to Roth IRAs may need to use the back door. Each year, more Vanguard investors make backdoor contributions. Over time, the tax benefit should prove well worth the additional step.

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A tale of three birth years

October 27, 2014

At first glance, "millennial" IRA investors seem to have considerable catching-up to do. However, each year more millennials are opening IRAs. Millennial IRA owners are also more likely to make a contribution. If average balance and cash-flow patterns continue, millennials are on pace to surpass prior generations. 

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But what if I don't want my RMD?

September 26, 2014

Retirees who need income from their investment portfolios should start by spending their required minimum distributions (RMDs). However, investors are not actually required to spend what they withdraw. Investors who don't need to spend their RMD should consider converting traditional IRAs to Roth IRAs before age 70½. 

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IRA contribution report: How do you compare?

September 11, 2014

In 2013, average contribution amounts to Vanguard IRAs increased for the fifth consecutive year, and more investors contributed to an IRA than ever before. Much of this growth can be attributed to the 2013 contribution increase, which meant that everyone who contributed the maximum amount contributed more than they did in 2012. 

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Now is the time to graduate to an IRA

May 2014

Helping your graduate find an IRA can ensure he or she doesn't miss out on "prime saving years." Because of compounding, every dollar contributed at age 20 can earn more than twice as much as a dollar contributed at age 35, and more than ten times as much as one contributed at age 55. 

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Are investors breaking from the traditional?

April 2014

Vanguard investors favor Roth IRAs over traditional IRAs when making contributions by a margin or 2 to 1. The ratio is even more lopsided for younger investors. One reason for the preference is Roth IRA contributions can be worth more in retirement as investors are allowed to contribute more on an after-tax basis. Over time, these savings can add up.

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Take it to the limit . . . one more time

March 2014

More than half of Vanguard investors who contribute to an IRA save the maximum amount allowable. As investors age more contribute the maximum allowed. Research has shown that the number of investors who contribute the max amount drops when investors reach 50. It's likely that investors don't immediately recognize that when they hit age 50 they're eligible to increase their annual contribution by $1,000.

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Are investors subjecting themselves to the "procrastination penalty"?

February 2014

More than double the amount of IRA contributions are made shortly before the deadline. Waiting until the last minute to make your annual contribution has a cost as missing out on a year's worth of tax-advantaged compounding is like paying a "procrastination penalty." Investors would be better served by making smaller, regular contributions, or by setting up automatic contributions.

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Do contribution deadlines lead to poor investment decisions?

January 2014

Between January and April the percentage of IRA contributions to money market funds increases as investors are under time constraints to make their annual contribution for the prior tax year. While investors know they need to make a contribution, they often park it in a money market fund because they haven't decided where they want to invest the money. That "temporary" investment becomes permanent for many investors as two-thirds of last minute contributions remained in money market funds four months later.

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Notes:

  • All investing is subject to risk, including the possible loss of the money you invest.
  • Diversification does not ensure a profit or protect against a loss.
  • When taking withdrawals from an IRA before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.
  • We recommend that you consult a tax or financial advisor about your individual situation.
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