Most of the Money in IRAs Comes from a Surprising Source

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published 16 April 2025

In 2024, 44% of households in the United States owned IRAs, including 33% with traditional IRAs, 26% with Roth IRAs, and 4% with IRAs through their workplace. These IRAs collectively held around $16.2 trillion in assets in mid-2024, representing 38% of all U.S. retirement wealth.

However, while nearly half of all households now have an IRA — and these IRAs hold around 13% of household financial assets — very few people actively contribute money to these accounts regularly. In fact, fewer than one in five households invest money into IRAs.

So, how did all of this money get into these accounts if people aren't investing in them? The bulk of it comes from a surprising source.

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Most money in IRAs doesn't come from contributions

According to recent research from The Investment Company Institute, rollovers from employer-sponsored retirement accounts have been largely responsible for the growth of IRAs.

In total, 59% of households with a traditional IRA said the account contained a rollover from an employer-sponsored plan. Among those households that had rollovers in their account, 85% rolled over the entire balance from their workplace plan in their most recent rollover. However, just 41% of those households said they had also made contributions outside of the rollover.

ICI reports that, in total, the most recently available data from 2022 demonstrated households had rolled over an estimated $670 billion from employer-sponsored plans into traditional IRAs.

Most of this money (69%) came from people who moved their money into an IRA after a job change, layoff, or termination, while 46% shifted their funds into their IRA upon retiring.

Why are so many people rolling their 401(k) into an IRA?

Rollovers are popular and common because they are one of three options when you leave a job with a 401(k) — and they are often the best option. Here's what you can do with your 401(k) when you separate from an employer.

Leave it be. You can usually, but not always, leave your money invested, but you risk forgetting the account and losing the funds.

Empty your 401(k). You can withdraw the funds, but this is the worst possible option and not one worth considering, as it will trigger penalties and taxes and leave you without the invested funds for your future.

Roll over your 401(k). You can roll over the account to a traditional IRA without incurring a tax bill and preserve the ability to enjoy tax-deferred growth until retirement. (You can also roll over a traditional 401(k) to a Roth IRA, but there will be tax consequences.)

For many, rollovers are the best choice due to the significant advantages they can provide.

"Usually, rolling over a 401(k) to an IRA will allow for a much wider array of investment options, instead of being limited to what a 401(k) plan offers," according to Clifford C. Cornell, CFP, and associate financial advisor at Bone Fide Wealth, LLC. "The investment options in an IRA can even be more cost-effective than the funds offered by the 401(k) plan."

With the Bureau of Labor Statistics reporting a median job tenure of just 3.9 years for wage and salary workers in 2024, Americans also change jobs often. The ability to move multiple old 401(k) accounts to a single IRA is a significant advantage.

"A rollover could also be good if you have several 401(k)'s to consolidate into one rollover IRA," said Chad Gammon, CFP and Owner at Custom Fit Financial. "This can help simplify your finances."

And keep in mind that rolling over a 401(k) to an IRA does not count as an IRA contribution.

Rollovers aren't always the right choice

Although these advantages mean moving a 401(k) into an IRA is often the right move, that doesn't mean it always is.

"I have seen 401(k)s that have great options and very low costs, so it doesn't make sense to do a rollover," Gammon said. "There are also greater protections from creditors on 401(k)s than IRAs. The 401(k) is protected at the federal level, and the IRAs are protected at the state level. The states' protections vary state to state, and you will want to look at that for the state you live in and the state you plan to live in at retirement."

Cornell also warned that converting a 401(k) to an IRA could affect your ability to take advantage of the backdoor Roth option. "If someone is taking advantage of the Backdoor Roth on an annual basis, rolling their 401(k) to an IRA would make any conversion of pre-tax funds to their Roth IRA a taxable event."

That happens because the "pro rata" rule requires that you take all IRA distributions proportionally from pre-tax and after-tax contribution sources — and your 401(k) is a pre-tax contribution source.

Because of this, if you use the backdoor Roth option, Cornell advises rolling IRA funds to your new employer's 401(k) instead of to a traditional IRA so you don't affect your options for IRA to Roth conversions.

Should you contribute to an IRA?

While IRAs clearly serve an important role in providing Americans with a place to move 401(k) funds, the fact that so much IRA money comes from rollovers raises the question of whether more Americans should be directly investing in these accounts.

"Traditional and Roth IRAs can be a great way to add another level of tax efficiency to someone’s overall financial scenario," Cornell said.

While Roth IRAs have income limits, and traditional IRAs limit tax-deductible contributions for higher earners if the accountholder or their spouse has access to a workplace plan, IRAs do provide benefits, including a greater number of investment options as mentioned above. Further, for those who only have access to a traditional 401(k) at work, a Roth IRA offers an alternative that allows you to defer tax savings until retirement.

Ultimately, many Americans don't contribute to IRAs, though, and often for financial reasons. Investment Company Institute data shows four in 10 don't contribute to these accounts because they don't have extra funds to do so or because their workplace plans meet their savings needs.

Maxing out a 401(k) match is always more important than IRA contributions. But for those who have already earned all the contributions their employers offer, it may be worth funneling some of their spare funds to a traditional or Roth IRA instead of making additional 401(k) deposits to gain the added diversification IRAs can offer.

Christy Bieber is an experienced personal finance and legal writer who has been writing since 2008. She has been published by Forbes, CNN, WSJ Buyside, Motley Fool, and many other online sites. She has a JD from UCLA and a degree in English, Media, and Communications from the University of Rochester.